Turmoil in Iraq is pushing up U.S. gasoline prices

Posted Thursday, Jun. 19, 2014  comments  Print Reprints
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Violence in Iraq is helping to make gasoline in the U.S. more expensive, depriving drivers of the usual price break between Memorial Day and July Fourth.

The national average price of $3.68 per gallon is the highest price for this time of year since 2008, the year gasoline hit its all-time high.

In the Fort Worth-Arlington metro area, regular gasoline averages about $3.57, which along with Dallas ranks as the highest in Texas, according to auto club AAA.

The good news is that gasoline is not likely to spike above $4 as it did 6 years ago. Or even cross $3.90, as in 2011 and 2012.

“You are going to pay a little more than we thought you were going to pay,” says Tom Kloza, chief oil analyst at the Oil Price Information Service and GasBuddy.com. “But you are not going to see any apocalyptic numbers.”

The average gas price nationally so far this year, however, is still 5 cents cheaper than it was last year over the same period.

In Texas, prices are up six cents a gallon from a week ago, to an average $3.50 a gallon, said AAA. Locally, they’re up more than 10 cents from a week ago and up about 8 cents a gallon from a year ago.

“We don’t know for sure if prices will continue to rise,” but drivers should do what they can to control fuel costs, said AAA Texas/New Mexico representative Doug Shupe. Measures include keeping to moderate speeds on the highway, which reduces wind resistance that boosts fuel use, and maintaining a consistent speed.

“The type of car you drive, how it’s maintained, and how you drive significantly affect fuel conservation,” Shupe said.

Global oil prices have risen 5 percent since an insurgency took over two Iraqi cities. Any sustained increase in oil and gasoline prices can damp economic because it raises costs for businesses and leaves drivers with less money to spend on other things. A 10-cent rise in the price of gasoline only costs a typical driver an extra $1.50 to fill up a tank, but if that rise is sustained over a year it costs the U.S. economy $13.5 billion.

Gasoline prices typically fall in the weeks following Memorial Day, after supplies increase enough to fill up the cars of the nation’s vacationers as summer approaches. Prices have declined during the previous three Junes, by an average of 21 cents per gallon, according to AAA.

This year, drivers are paying more. The average has risen every day for a week, and is now higher than it was on Memorial Day — with more increases sure to come.

Even before violence in Iraq broke out, the decline in prices was slower than expected because of rising U.S. fuel demand and extensive maintenance at some Gulf Coast refineries that reduced gasoline output.

Then, last week, Iraqi insurgents seized a pair of cities and pledged to attack Baghdad. None of Iraq’s oil fields were targeted — most are far away from the fighting, and oil exports have continued to flow. But Iraq is OPEC’s second-largest exporter, so worries that oil production might be impacted was enough to send global oil prices up by $6, to almost $115 per barrel.

The average price of gas rose 3 cents per gallon during the past week, and analysts expect more increases over the next couple of weeks.

Higher crude prices generally make for higher fuel prices around the world, too, but the effects on drivers vary widely.

In many countries, gasoline prices are subsidized, so drivers don’t see the effects of price changes quickly. In other nations, especially in Europe, fuels are taxed so heavily that a moderate change in the underlying price of fuel is hardly noticed.

How the situation in Iraq plays out is hard to predict, but analysts note that the global market is well-supplied with oil and fuels. Morgan Stanley wrote in a recent report that the potential for a significantly higher sustained oil price was “limited without a major disruption,” and that “the conflict will likely be contained primarily North of Baghdad, limiting the impact on oil exports.”

But drivers in 15 states are already paying more for gas than they have since March of 2013, according to Kloza. The national average will likely soon surpass this year’s high of $3.70 per gallon, set on April 28.

Kloza thinks the national average may get close to last year’s high of $3.79 per gallon, but he does not expect to see it reach the highs of 2011 and 2012, when it rose above $3.90 per gallon.

And the chances of the average crossing the $4 mark?

“The [last place] Mets have a better chance of winning the World Series,” he said.

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