Gas costs not likely to drop

Published 6:00 am Tuesday, March 11, 2003

There’s no relief in sight for escalating gas prices, accordingto officials, and customers are beginning to question whether theywill ever see low prices again.

“It’s ridiculous,” said Linda Clark of Brookhaven. “I don’tthink I’ve ever seen gas prices this high. “I travel a lot. Itneeds to come down so people can travel more.”

Gas prices in the Gulf Coast region, which includes Mississippi,Alabama, Louisiana, Texas, Missouri and New Mexico, are hoveringaround $1.59 this week, but officials don’t expect it to last.Gasoline prices are up 1.3 cents in the region since last week andup 42.6 cents from March a year ago, according to the EnergyInformation Administration (EIA) of the Department of Energy.

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Other states, however, are looking to the Gulf Coast region withenvy. Their prices this week are averaging $1.71 with similarstatistics for a week and year ago as those of the Gulf Coastregion.

Prices in the Gulf Coast region are typically cheaper than mostof the U.S. because nearly half of the gasoline production in thestates is done here.

The latest gasoline crunch is fueled by production cuts inprevious years.

“The most recent gasoline price increases are due in part toOPEC crude oil production cuts in 1999,” according to EIA. “Inaddition, higher demand from a recovering Asian economy caused morecompetitive bidding for crude oil supplies in the internationalmarket.”

This created low inventories in the world market. As the marketwas beginning to recover from that blow, Venezuelan workers went onstrike, stopping crude oil production and exports from that keyOPEC country.

Strike leaders lifted the general stoppage in non-oil industriesFeb. 3, but there has been no resolution of the strike inVenezuela’s oil sector, now in its fourth month.

“Even when crude oil prices are stable, gasoline prices normallyfluctuate due to factors such as seasonality and local retailstation competition,” according to EIA. “Additionally, gasolineprices can change rapidly due to crude oil supply disruptionsstemming from world events or domestic problems, such as refineryor pipeline outages.”

The loss of Venezuelan oil was partially offset by increasedproduction from other OPEC members, who were able to match nearly60 percent of the lost production. However, the world oilinventories were already low from the 1999 production cuts and cannot rebound until full production is regained. Low inventories aredriving higher gas prices in a basic struggle of supply anddemand.

The Venezuelan strike and other factors in the world politicalclimate have had a very severe impact on oil prices, especiallywith the possibility of a war in Iraq looming.

“February crude oil prices moved higher than expected pushed byfears of a war in Iraq, low inventories, slow recovery inVenezuelan exports, continued cold weather and sharply highernatural gas prices in the U.S.,” according to EIA.

The threat of war involving OPEC members traditionally has anegative effect on gasoline prices.

“Events in crude oil markets were a major factor in all but oneof the five run-ups in gasoline prices between 1992 and 1997,”according to the National Petroleum Council (NPC).

In 1973, gas prices climbed because of an Arab oil embargo.Events involving Iran caused the increases in 1978 and 1980, firstthe Iranian revolution and then when they went to war with Iraq.The Persian Gulf conflict caused the increase of 1990.

Most of the Middle Eastern countries are members of OPEC,including Iran, Iraq, Kuwait, Saudi Arabia, United Arab Emiratesand Qatar. Other members include Venezuela, Algeria, Nigeria, Libyaand Indonesia. Middle Eastern members make up more than half ofOPEC’s production and the threat of a war in the region tends toforce prices up, according to the EIA.

“OPEC has the potential to influence oil prices worldwidebecause its members possess such a great portion of the world’s oilsupply, accounting for nearly 40 percent of the world’s productionof crude oil and holding about 67 percent of world’s estimatedcrude oil reserves,” according to the EIA.

Because of all these factors, gasoline prices are not expectedto decrease until the Venezuelan strike ends and oil exports resumethere at their normal levels, and the threat of war is removed fromthe Middle Eastern region.

Clark said she doesn’t expect to ever see low gasoline pricesagain.

She believes that after summer, when gasoline prices aretraditionally higher as more people travel, prices will not declineas they usually do with the onset of fall. People will be used topaying high prices, she said, so the oil companies will keep priceshigh.