Threat of war, cold weather fuel jump in gas, oil prices

By Kathy Helms-Hughes

STAR Staff
khelms@starhq.com

   Motorists who have not filled their tanks with gasoline lately are apt to get quite a shock the next time they visit the station. Nationwide, gasoline prices have soared more than 10 cents in a week, with the nationwide average now at more than $1.60 per gallon, according to Wendy Bishop, communications specialist at AAA's Kingsport office.
   However, gasoline is not the only petroleum product increasing in price. The cost of propane and home heating oil also has risen sharply since December. Unfortunately, this trend is expected to continue, fueled by severe cold weather, the possibility of war with Iraq, and the disruption of oil exports from Venezuela, which has been locked down for the last two months by a labor strike.
   The average price of gasoline in the Tri-Cities, according to last week's figures from AAA's Feb. 5 Fuel Gauge Report, showed a jump in prices at the pumps.
   In Bristol, the average price was $1.495, an increase of 6.7 cents. Kingsport's average was $1.511 -- an increase of 8.5 cents -- while Johnson City's average was $1.484, an increase of 7.6 cents. The average price in the Southeast was $1.561 per gallon.
   The latest fuel gauge report, due out today, also is expected to show an increase. "Like in Kingsport where it was up 8.5 cents, it will probably go up a couple more cents to where the actual increase will be a dime," Bishop said.
   "This is the highest gasoline price ever recorded by AAA in February," she said. This is significant because February typically is a time when gas prices are lower than other months of the year, and when motorists are traveling less.
   "Usually a little before Memorial Day we typically see a little spike in the prices, and everybody has come to expect that as a trend; but, of course, this is completely different," Bishop said. "The reason gas prices are going up is the fear and speculation that the United States might go to war with Iraq, and the possibility of another terrorist strike here in the United States."
   Steb Hipple, professor of economics at East Tennessee State University, said Tuesday that gasoline prices at retail tend to reflect more psychological factors than anything else.
   "The gasoline that we buy at retail, along with things like fuel oil for winter heating, has been manufactured a long time ago. The oil companies, as a pricing practice, will increase the prices at the pump if psychological conditions support it. So, with the threat of a Middle Eastern war, with the interruption of production in Venezuela, they raised their prices now to protect them against the possibility of future losses in supply," Hipple said. "At some point, if there is a severe interruption in supply, they lose money big-time."
   Hipple said retail gas and fuel oil prices tend to be volatile, particularly when there are threats to production and distribution. "OPEC has actually increased production to offset any loss of Iraqi oil, so there has been an effort by the OPEC nations to try to maintain a stable world supply and a more stable pricing structure."
   Excessive increases in gasoline prices can spur panic buying by consumers, leading to localized spot shortages, according to AAA. Motorists are advised to shop aggressively for the best gasoline price, Bishop said. Although she did not know of any specific cases in the Tri-Cities, "price gouging is always a possibility."
   Bishop said motorists also need to realize that speeding is a factor in increased gasoline consumption and advised that leaving early for a destination and following the speed limit can save money in the long run.
   "In the event that we do go to war or that some type of military action occurs, just going to the store for a gallon of milk might not be the best economical thing to do. Waiting until you have a list or trying to do all of your shopping in one trip also can help," she said.
   Not only have gasoline prices climbed, but wholesale prices for all petroleum products have skyrocketed in the last three months, according to Dan Rhymer, manager of Freeman Gas in Mountain City.
   "This year, because of the severe cold weather that we've had, people have used a lot more fuel, not only here but nationwide. The wholesale price increased over 12 cents a gallon on propane last week alone. The retail end of it hasn't risen in about three weeks."
   Rhymer said propane, which is used for home heating, is now $1.51 per gallon, or $1.47 for consumers who pay their bills within 10 days. "That's probably 20 cents higher than it was in December," he said.
   Distributors such as Appalachian Oil Co. also have seen a jump in wholesale prices. Jeff Benedict, Appalachian's chief executive officer, said Tuesday that their cost for gasoline from major oil companies such as Exxon and Amoco has increased nearly 30 cents a gallon since the beginning of December.
   "What's doing that is two things: The first is the possibility of war in Iraq. The second is the labor strike in Venezuela, which shut down the country's oil exporting industry. Most people don't understand that we get a lot of oil in this country from Venezuela. I wouldn't be surprised if it was like 20 percent," Benedict said.
   Severe winter weather also has stressed heating oil and kerosene prices. "At one point last week, our cost for kerosene was $1.60 a gallon," he said.
   Tennessee Valley Authority already has seen a record power demand this winter, according to Gil Francis of TVA media relations.
   "On Jan. 24, we had the all-time peak power demand of 29,886 megawatts of power. Prior to this year, the all-time peak had been set back in August 2000. That was 29,244 megawatts. But then on Jan. 23, we hit 29,803, and the next day we hit 29,866," Francis said.
   "If you think about it, the economy is kind of soft; and had it not been, the power demand probably could have been higher. Cold temperatures drive the peak; and yes, folks will see that reflected in their power bill."