Quick jump of 5 cents a gallon seen

Gas Prices

July 14, 2006|By TRICIA BISHOP | TRICIA BISHOP,SUN REPORTER

Amid fears that supplies would be upset by intensified fighting in the Middle East, the price of oil reached a new high yesterday in New York trading, which likely will have a swift effect on gasoline prices and could soon raise costs beyond the pump if the turmoil continues, analysts said.

Gas already is at higher summer prices - an average of $3.08 per gallon in Baltimore - fueled by the vacation season and record demand calculated last month by the U.S. Energy Information Administration. But those prices could rise by a nickel within a week or two if yesterday's oil price of $76.70 per barrel is sustained, some said. A bad hurricane could push prices even higher.

It all could have a trickle-down effect that boosts the price of everything from food to airline tickets, energy experts said. And reaction from Wall Street suggests this isn't a one-day deal.

The market typically takes oil price fluctuations in stride, but the Dow Jones fell nearly 167 points yesterday and 122 points the day before, causing some analysts to uncharacteristically blame the price of oil and question the long-term effects on stock portfolios.

"The economy took $50 oil in stride," said Daniel Yergin, who heads Cambridge Energy Research Associates. "It's clearly not taking $70 or $75 a barrel in stride. This is a rougher adjustment."

The increase in oil prices came as violence between Israel and the Islamic militant group Hezbollah escalated yesterday, explosions rocked Nigerian oil installations and tension increased between the West and Iran over that country's nuclear program. Such activity could cause a disruption in oil output, and some worried that current supplies would not be able to meet demand.

The price of a barrel of oil, which rose by $1.75 yesterday, accounts for about half of the gasoline cost at the pump, so "whenever crude oil moves, clearly it's going to have an effect," said John Eichberger, vice president of government relations for the National Association of Convenience Stores.

That effect used to be slower in coming, he said, with retailers waiting to pass on the increase until it affected them. But the recent volatility in the oil market has caused a shift in thinking. Retailers are adjusting their prices today based on what they will have to pay tomorrow.

"It's an inexact science," said Doug MacIntyre, an oil market analyst with the U.S. Energy Information Administration.

If a major storm were to affect refineries, that too could increase prices. When Hurricane Katrina battered the Gulf Coast in August, oil prices reached a then-record $70.85 per barrel. The storm temporarily closed two major pipelines that provide most of the Baltimore-Washington area's gasoline. Shortages followed, along with prices of about $3.30 per gallon in Maryland.

Within months, however, the average price of a gallon of gas was around $2.50 and oil prices were in the low $60 range.

According to AAA, the average price of a gallon of gas nationwide yesterday was $2.96. By comparison, the District of Columbia averaged $3.19 a gallon and Massachusetts stood at $3. Maryland's average was $3.06 a gallon - up from $2.32 a year ago and $3.01 a month ago.

Taxes, the cost of transportation and refinery expenses figure into the price of gas. Also, a bill passed by Congress last year that prompted refiners in the Northeast corridor to begin blending gas with ethanol, has pushed prices higher.

"The reformulated blend stock is about 13 to 14 cents a gallon more than conventional gasoline," said Rayola Dougher, who manages energy market issues for the American Petroleum Institute. She expects any increases in gas prices to continue to increase costs for other goods.

"It shows up subtly, in the cost of food, anything, any of the products that we have to move around the nation - airline travel for example," she said.

But not all of the increases are justified, said Peter Morici, an economics professor at the Robert H. Smith School of Business at the University of Maryland and former chief economist at the International Trade Commission. He recently hired a mover to take a couch from one floor in his home to another and said the man wanted to charge him a $45 "fuel surcharge" for the trip.

"One of the things to watch out for is abuse," Morici said. "People sometimes try to use gasoline as an excuse for pushing things way out of line."

Morici believes the higher prices have had a positive effect in some ways, ramping up productivity for certain retailers and manufacturers, who've had to increase efficiency to help keep their prices stable amid gas inflation. He pointed to Wal-Mart Stores Inc., saying they now deliver directly to stores rather than warehouses much of the time, cutting out the middle trip.

Still, Wal-Mart's stock fell about $1 yesterday to $44.19 on the New York Stock Exchange amid concerns that consumers are shopping less because of gas prices. Merrill Lynch also downgraded the company yesterday from "buy" to "neutral."

Baltimore Sun Articles
|
|
|
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.