Higher Prices At the Pump Could Slump


GASOLINE prices have edged up across America to the highest level since the Gulf war in 1991.

But you don't need to tell that to Bruce Smith, filling his 20-gallon-tank Ford pickup for $1.47 per gallon at a corner Mobil station here.

"It was 20 cents less per gallon just a few weeks ago," says the disgruntled electrician, wrestling a tangled fuel hose as if he were Crocodile Dundee. Calculating two fill-ups a week, he says he is out an additional $32 per month. "The gas companies are sticking it to us again, just in time for summer vacation," he says.

Drivers like Mr. Smith can blame their thinner wallets on the supercold winter of 1996, which depleted American oil inventories, and speculation that large amounts of Iraqi oil may soon flood world markets, driving prices down.

"US companies are loath to replenish their used-up reserves at current prices, because they fear they will be stuck with them after huge amounts of Iraqi oil drives prices down," says Scott Susich, vice president of Computer Petroleum Corporation, an information service in St. Paul, Minn.

The good news is that although prices are higher in nearly every state - about 14 cents per gallon on average since February - there is no indication that consumers are in for a prolonged price gouging like that of the early 1970s, when the Organization of Petroleum Exporting Countries (OPEC) cartel wreaked havoc and caused inflation to soar everywhere from Western Europe to the United States.

"All our indications are that these latest increases will be a short blip on the screen and prices will go back down before the summer driving season," says Mark Morrissey of the Automobile Association of America.

For their part, Iraqi negotiators in New York are trying to persuade United Nations officials to lift sanctions on the sale of Iraqi oil, in place since Iraq's defeat in the Gulf war. Most observers expect sanctions will soon be lifted because of humanitarian concerns over the dwindling quality of life for Iraqi citizens.

Iraqi Ambassador Abdul Amir al-Anbari said on Wednesday he hoped a memorandum of understanding could be signed with the UN allowing the Baghdad government to sell $2 billion worth of oil over six months to raise money for food, medicine, and other necessities.

"Because American suppliers are waiting out this standoff, reserves are down, prices are up. It's the old rule of supply and demand," Mr. Susich says.

In the meantime, American producers and sellers are concerned about the prospect of Iraqi oil on world markets. The US already gets 52 percent of its oil from foreign sources, and another supply source from the oil-rich Mideast only produces more competition.

That may mean cheaper gas for summer travelers, but more Mideast oil could "devastate American oil production," says Jeff Eshelman, spokesman for the Independent Oil Association of America, which represents 5,300 oil and gas companies. Once negotiations between Iraqis and UN officials are complete - now said to be stalled over how and whether to distribute aid to rebellious Kurds in northern provinces - Mr. Eshelman estimates a daily addition of 800,000 barrels of crude on the world market. That could result in about a $2-per-barrel drop in oil prices, he says.

"That sounds like a small amount, but it's not, because American profit margins are so slim," he says.

Other analysts remind American consumers that they still enjoy the lowest gas prices in the world, nearly half those in many places in Europe where taxes of $2 per gallon are common.

"The Gulf war brought [oil] prices down from the period leading into that conflict," recalls Trilby Lundberg, editor of the Lundberg Letter, an oil and gas market newsletter. "Drivers could be favorably comparing today's prices with how much higher they were then ... but then they wouldn't have anything to complain about."

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