Iraq crisis reaches all the way to gas pump

| Friday, June 20, 2014, 12:01 a.m.

Violence in Iraq is helping to make gasoline more expensive, depriving American drivers of the usual price break between Memorial Day and July Fourth.

Global oil prices have risen 5 percent since an insurgency took over two Iraqi cities. Any sustained increase in oil and gasoline prices can put a damper on economic growth.

The average price of $3.68 per gallon is the highest price for this time of year at American pumps since 2008, the year gasoline hit its all-time high. In Western Pennsylvania, the average price for a gallon of gas was $3.78 this week.

The good news is that gasoline is not likely to spike above $4 as it did 6 years ago, experts say. 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 “But you are not going to see any apocalyptic numbers.”

Gasoline prices typically fall in the weeks after Memorial Day, when supplies increase enough to fill up the vacationers' cars as summer approaches. Prices have declined during the last 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.

Higher fuel costs can reduce economic growth because they raise costs for businesses and leave drivers with less money to spend on other things.

A 10-cent rise in the price 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 economy $13.5 billion.

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

Even before violence in Iraq broke out, gasoline prices were falling more slowly than expected because of rising fuel demand in this country and extensive maintenance at some Gulf Coast refineries that reduced gasoline output.

Then, last week, terrorists seized Iraqi cities and pledged to attack Baghdad.

Oil exports have continued to flow despite a battle for control of Iraq's biggest oil refinery, and Baghdad officials insist security forces are “in full control” of the Baiji refinery, about 130 miles north of the capital.

But Iraq is OPEC's second-largest exporter, so concern that oil production might be impacted has been enough to send global oil prices up by $6, to about $115 per barrel.

Nationally, the average price of gas rose 3 cents per gallon during the past week, and analysts expect more increases in the next couple of weeks. In Western Pennsylvania, the average price was 3 cents a gallon higher than last week and 26 cents higher than a year ago, according to AAA East Central.

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 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.”

Nevertheless, drivers in 15 states are now paying more for gas than they have since March of 2013, according to Kloza. The national average is likely soon to 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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