No Quick End for Higher Gas Prices

<a href=www.hpj.com>High Plains Tuesday, March 25, 2003  Good Morning!   We feel it in our pocketbooks every day. Gasoline and other energy prices have been on the rise. In mid-March, regular gasoline prices reached a record high of $1.73 per gallon. Prices are 40 percent higher than last year at this time, according to this week's public policy brief from Roy Frederick, Public Policy Specialist, Department of Agricultural Economics, University of Nebraska-Lincoln.

Many factors have contributed to recent price hikes. A petroleum workers' strike in Venezuela, the buildup to war in Iraq and operating problems at some U.S. refineries lead the list.

More fundamentally, we must acknowledge our ever-growing dependence on foreign oil. The U.S. Energy Information Administration recently estimated this year's domestic demand at just over 20 million barrels per day. Of this total, less than 6 million barrels are expected to come from our own production. Never before has the gap between usage and production been so wide.

By comparison, worldwide petroleum demand this year is estimated at 77 million barrels per day. Thus, the United States, a country with 4 percent of the world's population, accounts for 26 percent of the worldwide petroleum market.

In a time of international unrest, America's skewed share of the worldwide oil market could work both for and against us. On the positive side, some big oil suppliers, such as Saudi Arabia, know that their own economies depend on U.S. oil purchases. They are reluctant to allow political differences to disrupt cash flows into their own treasuries.

At the same time, Frederick wrote, the United States can hardly feel smug depending on others as much as we do for a critical resource like oil. Even a 10 percent disruption in supplies probably would cause gasoline and other energy prices to spurt much higher.

The Organization of Petroleum Exporting Countries, led by Saudi Arabia, produces about a third of the world's oil. But beyond ongoing production, it's excess capacity that makes OPEC the world's oil kingpin. OPEC is promising to make up any lost production from Iraq and Kuwait. And in recent days, Saudi Arabia has ramped up production with that thought in mind.

Unfortunately, lags occur from production to filling your vehicle's gas tank. For one thing, it takes at least a month for an oil tanker to make the trek from the Middle East to the U.S. Gulf Coast. Figure on another month to move imported oil through refineries and distribution systems. This suggests that it will be late May before gasoline shortages begin to ease. Even then, I can't be optimistic about lower prices at the pump.

Increased supplies are likely to occur at about the same time that the heavy summer driving season begins. Moreover, refiners say that they haven't increased gasoline prices as much as they should have over the past few months. They will try to recoup with higher margins as crude oil supplies become more plentiful. For the foreseeable future, you'd better plan on a much lighter wallet after each fill-up.