Uncertainties in the war causing gas prices to rise

<a href=www.zwire.com>By: John Martin, Staff Writer March 30, 2003

Joyce Simmons of Greenwood pumps gas into her car Saturday at a Greenwood Double Quick on the U.S. 82-49 bypass. She said the $1.56 a gallon she paid was still too much.Weeklong respite from climbing prices coming to end Don't let the lower prices at the pump fool you.

After a weeklong respite from climbing gasoline rates, American motorists should expect the cost of filling their cars to jump again as uncertainties in the war against Iraq continue to emerge, industry officials say.

Greenwood drivers saw gas prices dip below the state average of $1.60 a gallon for regular unleaded Friday. Before fighting began in Iraq, local rates were pushing $1.65 or more.

That decline corresponded with international oil prices, which as U.S. and British forces flexed their muscle at the war's outset dropped on March 21 to a three-month low of $26.91 a barrel.

Joyce Simmons, a Milwaukee Electric Tool Co. employee from Greenwood, was filling up her car at a Double Quick for $1.56 a gallon Saturday. That still isn't low enough, she said.

"Let them go all the way down, and we'll appreciate it," she said.

Simmons said she doesn't trust the prices to keep going down as long as war continues. She might be right.

Since oil prices closed so low two weeks ago, the war situation and the market's response have changed, says Tom Gresham, spokesman for Double Quick and Gresham Petroleum in Indianola.

"I think the oil traders initially felt the war was going to be quick, and prices started coming back down," Gresham said. "But as it looks like this is going to be a prolonged engagement, we should start seeing prices head back up."

That reaction from oil prices has already begun. They jumped again this week, closing Friday at just over $30 a barrel, the biggest one-week leap in almost a year.

Gresham said this trend has nothing to do with burning oil wells in southern Iraq. Only two of the seven wells that were set on fire in the now-secured Rumailah oil field are still burning. In the 1991 Gulf War, Iraqi forces damaged or destroyed more than 700.

But after that experience, speculators are hyper-sensitive to images of flames spouting hundreds of feet above oil fields, says Don Redmond, a spokesman for the American Automobile Association's regional headquarters in New Orleans.

"We're in a tense situation," he said. "Shortly after the onset of war, oil prices on the open market dropped down in some cases by almost $10 a barrel. Once reports came in that oil wells were on fire in the south, they went back up. Then when we found out there were only three burning, it went back down. Then, it went up again."

While oil prices are cowed by constantly evolving news reports from the war, the well fires could have a longer lasting impact. Industry officials had predicted oil shipments from southern Iraq would resume in as early as three months. But this week, a British commander said that's contingent on a $1 billion investment in the Rumailah field.

The United States has in recent years received about 9 percent of its crude oil from Iraq, according to Redmond.

He said oil prices will be helped by an OPEC promise to make up for any production shortfall that results from the war. "That appears to be easing the effect of the war."

Still, Redmond said, few predictions are reliable in a market that has been hit with an onslaught of unpredictable setbacks recently.

Contributing to the earlier uncertainty over Iraq were a strike among Venezuela oil workers, a bitter winter in the Northeast and Midwest, cuts in 2002 OPEC production and a depletion of U.S. oil inventories, he said. Now, civil unrest in Nigeria, the United State's sixth-largest oil supplier, is threatening imports on another front.

Despite all the uncertainty and volatility in the oil market, Americans don't appear moved by higher gasoline prices. If anything, they are buying more gas than usual, Redmond said.

"Analysts at the Department of Energy were surprised by the high level of demand for gasoline products during the months of January and February, which is traditionally one of the down times," he said.

The Energy Department did note a sag in consumption the week the war began. That, however, corresponded with a jump in the hours Americans spent glued to their television sets, watching the war, said Redmond.