Thursday, February 13, 2003

Get ready for gas prices to jump more


Iraq crisis peaking at a bad time

By James Pilcher
The Cincinnati Enquirer

[photo] The owner of a BP station in Palmetto, Fla. made this sign in reaction to what he calls the highest prices for gasoline he's ever seen.
(Associated Press photo)
| ZOOM |
Gasoline prices shot up by as much as a quarter a gallon this week, hitting their highest levels in almost two years and leaving drivers muttering to themselves over paying $1.75 for a gallon.

But given the timing of a possible war with Iraq, things could get much worse.

Oil supplies are lower, the ongoing strike in Venezuela has yet to be resolved, and the industry is heading into a time when prices spike anyway due to seasonal changes in gasoline formulas. That leads national and Tristate experts to think that drivers could be paying more than $2 a gallon if the United States does indeed follow through on its threats and attacks Iraq.

"We're already getting above $2 for higher blends in some pocket markets," said Tom Kloza, publisher of the daily Oil Price Information Service newsletter, which covers the petroleum industry. "But this isn't the big one, not even close, just a bit of what I call `preseason petronoia.'

"If you are just thinking in purely selfish terms about gas prices, the period between March 1 and April 15 is probably the worst you could have to throw the system out of whack, and that probably coincides with the window for an attack on Iraq."

CINCINNATI PREPARES FOR WAR
Friday: War talk may be spooking Wall Street, but experts advise long-term investors to stay calm and ride out the bad times.
Saturday: A look at financial and emotional support offered to the families of deployed guardsmen and reservists.
The nation's oil supply dropped another 4.5 million barrels last week, leaving inventories the lowest since 1975 and below what the industry considers necessary for smooth operation.

The Energy Department said Wednesday that crude stocks were at 269.8 million barrels, just below the lower end of an inventory range needed to assure that enough oil is available for efficient refinery operation.

The average price for a gallon of regular unleaded in the Cincinnati area was about $1.60 Wednesday, according to the AAA Daily Fuel Gauge Report. But many stations were up to $1.75 throughout the region, boosting their prices by Tuesday evening.

Prices in Northern Kentucky were $1.63 a gallon, according to the AAA Web site, but again, most stations were $1.75 or higher Wednesday. The last time local prices were this high was when they hit $1.85 on May 11, 2001. The all-time high locally was June 20, 2000, when a gallon of regular unleaded cost an average of $1.90.

Nationally, Wednesday's average was $1.61 a gallon, but cities such as Orlando, Fla., were reporting prices for premium as high as $2.04 a gallon, and the national wholesale average price broke the $1 a gallon mark last week for the first time in two years.

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Many local drivers interviewed Wednesday expressed resignation at the high prices, saying that oil companies were using the war threat as a way to drive prices up.

But "if that's the way prices have to be to take care of Iraq, then so be it," said Glenn Phillips of Springfield Township, who filled up his conversion van at the Speedway in Florence on Wednesday. "We need to take care of Iraq."

Local dealers denied any price gouging.

"Most retailers are keeping to their cost or even a little bit below because of all the competition here," said Steve Harper, president of Florence-based Harper Oil Inc. His company sells gasoline wholesale to 25 stations and operates another eight convenience stores.

"But given the way the market works around here, I would not see $2 a gallon as out of the question in the spring in the case of war with Iraq," said Harper, who also is the chairman of the Kentucky Petroleum Marketers Association.

Jay Saunders, a New York-based energy analyst for Deutsche Bank, said the nation's gasoline supply could be as much as 15 million barrels below normal by the end of March. That could be the result of a drain from the ongoing situation in Venezuela and the fact that refiners have recently concentrated on making heating oil instead of gasoline because of the cold winter.

That, coupled with rising demand - as people continue to drive instead of fly - could mean trouble when refiners traditionally drain their tanks to begin making cleaner-burning reformulated gas required in many areas, including Northern Kentucky.

"Everything is really tight, and we've got three different issues converging - possible war with Iraq, the annual changeover that already causes problems, and the Venezuela situation, which is a double hit because, instead of importing their product, we are not only losing that but exporting to them," Saunders said.

If the prices do spike and a war is extended, Saunders predicted that demand could drop, as it did in the oil crises of the 1970s.

Tim Booker of Mount Healthy already was reconsidering the recent purchase of his latest vehicle, a new full-sized sport-utility vehicle.

"I think I wish I would have waited before I bought this truck," Booker said of his new GMC Yukon.

Booker, who filled up Wednesday at the Shell station at Cincinnati-Dayton Road and Interstate 75 in West Chester Township, said he would consider leaving the new vehicle at home if the prices get out of hand.

"Gas is too expensive now, and I only put premium in here," Booker said. "If gas prices went way up, I'd think about catching the bus or car-pooling."

Enquirer reporter Chris Mayhew and contributor Jenny Callison provided additional material for this story.

E-mail jpilcher@enquirer.com



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