Gas prices up nationwide

By Sean Hao
Advertiser Staff Writer

A Shell gas station in Pacifica, Calif., reflects how dramatically prices have risen in the state. Concerns over war in Iraq are fueling the increase, as well as shortages prompted by a seasonal shift in the blend of gas used in California. Associated Press

Gasoline prices continue to climb nationwide as concerns mount over oil supplies if war with Iraq breaks out. Nowhere have prices risen more dramatically than in California, where self-serve regular gasoline jumped 30 cents in the past month to $2.007 a gallon as of yesterday, according to AAA Auto Club. That's the highest in the nation — a dubious distinction typically reserved for Hawai'i.

Hawai'i's average of $1.957 a gallon was up nearly 14 cents during the past month.

Just what would happen to prices at the pump if there is a war remains a matter of debate, with some experts predicting a sharp decline and others warning that prices could remain high for the remainder of the year.

Researchers at the The East-West Center are among those predicting a sharp drop in gasoline prices — as much as 30 percent, once a war in Iraq, if it were to break out, ends. That's in part because much of the concern over war, including the potential disruption of Middle East oil supplies, will have been factored into gas prices, said Kang Wu, an East-West Center energy analyst.

The start of a war would clear up at least some of that uncertainty, which would help drive down prices at least within six to 12 months, and possibly sooner, he said.

"Supply and demand would return to normal and that would lead to lower gas prices," Wu said. "The timing is the issue."

After Iraq invaded Kuwait in late 1990, the average price of self-serve regular gasoline jumped from $1.19 a gallon nationwide to $1.34 a gallon as crude-oil prices soared. Prices abruptly retreated once the Gulf War started and by March 1991, they had plunged to $1.02 a gallon, partly because of a release of oil from the nation's Strategic Oil Reserve and a boost in output by other oil-producing countries.

Similar actions this time by the U.S. government and Organization of Petroleum Exporting Countries could have similar effects, Wu said. Such moves would more than offset the loss of up to 1.5 million barrels a day from Iraqi oil production, he said.

"If war breaks out and the government announces that it will release oil from the strategic reserve and OPEC releases another 3 million barrels a day, that can ease the market," Wu said.

However, if President Bush delays releasing oil from the nation's strategic reserve and OPEC delays boosting production, crude oil and gas prices could rise further, said Doug MacIntyre, a senior oil-market analyst with the Energy Information Administration, which collects and analyzes data for the U.S. Department of Energy.

MacIntyre said the timing of such announcements will be critical in determining how an outbreak of war will affect gas prices.

"There are a lot of people that expect a large price drop," he said. "Whether that would indeed happen, I don't know.

"As a consumer who buys gas I hope they're right."

There are significant differences in the petroleum market today compared to 1991, MacIntyre said. The country is currently experiencing historically low inventories of both U.S. oil and refined petroleum products because of lower imports from Venezuela, where labor strikes have cut oil production.

"Even under a normal level of supply, it would take months not weeks to build supplies of crude oil and products to normal levels," which could prevent prices from falling substantially, MacIntyre said. "There's not much to fall back on, if there is a delay.

"That really leaves no room for error."

The nation's gasoline market also has become more regionalized since the early 1990s, with many areas using specialized blends that include various additives and oxygen levels. That makes it much more difficult for one region to supply fuel to another when shortages occur, which makes gasoline prices more volatile.

That's one reason why prices have spiked in California, said Jeff Spring, an AAA Auto Club spokesman. The February to March period is typically when California refiners switch production from a winter blend fuel to a summer blend.

"That reduces supply," Spring said. "That's why prices have been going up here."