Pain at the pump, and more to come

April 15, 2002

IF IRAQ HAD succeeded in disrupting and dismaying the United States with its one-month cutoff of oil sales, it would have been good news for Saddam Hussein and Frank Murkowski.

Mr. Hussein, naturally, would like to bring America to its knees. Mr. Murkowski, the Republican senator from Alaska, has smaller ambitions: He just wants to be able to brush aside objections to oil drilling in his state's Arctic National Wildlife Refuge. An Iraq-driven oil crisis could have given him the ammunition he's been looking for.

It didn't happen.

The markets tried out a little Texas two-step when Mr. Hussein announced the cutoff, but the music wasn't right and they gave it up. There's a lot of oil in the world, much of it already above ground. The Iraqis are probably going to keep smuggling oil out, anyway. Non-OPEC nations now account for two-thirds of the world's oil production; Russia recently passed Saudi Arabia as the global leader. The Iraqis just aren't going to matter.

Mr. Murkowski and the Bush administration are still going to try to make as much of all this as they can, arguing about the dangers of American dependence on the unstable Middle East in an effort to persuade the Senate to give the go-ahead to a petroleum boondoggle in our own Far North. The problem with their idea is that it would solve nothing in the short run and next to nothing in the long run. What it would do is make money for some people in the oil business and turn a piece of the Arctic environment into an oil patch.

We trust the Senate will put a stop to it.

But there is a problem in the short run, even if it has very little to do with Iraq. All that oil notwithstanding, prices have been surging upward -- not toward crisis proportions, but high enough. And, as anyone who has been in a car recently would know, gasoline prices are also soaring.

Let's look at oil first. A barrel of West Texas Intermediate crude sold for less than $18 in mid-January, and now it's running about $27. That's a big hike.

Several different forces are behind it. The American economy is picking up, and that's good, even if it burns more oil. Venezuela is in political turmoil, and since it's a major exporter that's bad for oil prices, but it's probably a short-lived problem.

Then there's the conflict in the Middle East, and the Bush administration's well-publicized desire to do something about Iraq -- and that has induced the oil companies to hike up their prices even more, just in case. Some call it a war premium. To a certain extent it is caused by a prudent fear of disruption, and beyond that it is simply a case of people trying to make a profit off that very fear.

Oil stockpiles are growing around the world. In the United States alone, 325 million barrels of oil are being held back from the market. That's insurance against what might be a difficult future -- but we're paying for it now.

And so it is with gasoline. Its price lagged behind oil's earlier this year, but now it's making up for lost time. In just one week, the average price per gallon nationwide went up 4 cents, to $1.415. It's likely to go higher.

Why? The rising price of oil, of course, is a major factor, but there are others. At the end of March there were about 210 million barrels of gasoline stockpiled, not a record but higher than the seasonal average over the past five years. It's protection for the future, but it sends prices in one direction only -- up.

At the same time, refiners are pushing their margins up -- making more profit per gallon, in other words -- after a squeeze over the winter. Right now, refiners are clearing 40 cents on every gallon, and that's expected to keep heading upward toward levels reached only once before, a year ago.

Remember a year ago? We may be in for more of the same.

The oil companies get away with this for one reason: demand. The Department of Energy forecasts unprecedented demand for gasoline this summer. It expects the growth in demand to be greater than that in the past two summers combined. Americans will burn 8.88 million barrels every day on the nation's streets and highways.

Why so much? Last year, for the first time, sales of SUVs and pickups surpassed those of ordinary cars. Even as the recession hit, sales were ferocious last fall, thanks to zero percent financing. All those SUVs burn a lot of gasoline, and the funny thing is this -- everyone, even the guy in the Dodge Neon, has to pay more for gas because the SUVs are soaking up so much of it.

We all pay for their demand. And not just Americans. The price of a gallon of gas, before taxes, is 10 cents higher on the East Coast than it is in Europe right now. That won't last, because, thanks to the beauty of the global market, more petroleum will soon be diverted our way, and we can be comforted by the thought that foreigners will be sharing our pain.

In fact it's a fine mess we've gotten ourselves into, with no help at all from Saddam Hussein. The White House wants to pursue Arctic drilling, a bad solution to the wrong problem. The oil companies are making the most of a ripening situation, which is what we have come to expect from them.

Yet it is not letting them off the hook to point out that we'd be in a lot better shape if we all could learn to live -- and drive -- just a little bit more within our means.

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