News Column

Iraq crisis expected to boost oil prices

June 17, 2014

By Richard Newman, The Record (Hackensack, N.J.)



June 17--Gasoling prices are expected to rise a bit in the days ahead because of fears that Islamic militant attacks on Iraqi cities will endanger global oil supplies.

Many gas stations in northern New Jersey are likely to post price hikes this weekend in anticipation of possible wholesale increases down the road, said Tom Kloza, co-founder of the Oil Price Information Service. "Maybe it will cost you a nickel more on Monday," and increases in a range of 5 to 10 cents a gallon over the next seven days would not be surprising, he said Friday from his office in Wall.

Iraq is not a major supplier to the United States, but it is the second-largest oil producer in the Organization of Petroleum Exporting Countries, producing 3.3 million barrels a day last month.

As of Friday afternoon, no new shutdowns of oil wells, refineries or distribution points were reported amid the

fighting, which has been well north of Iraq's largest oil fieldsnear the southeastern city of Basra, the nation's largest port.

Nonetheless, the situation has sent shockwaves through the oil industry, and it's worry and fear, or what Kloza calls "petronoia" that often drives crude-oil market prices.

Crude-oil futures have risen on concerns that the fighting will spread, and those higher prices will likely be passed on down the supply chain to motorists. This week, West Texas Intermediate and Brent crude oil prices posted their biggest weekly gains of the year, said Bloomberg News. Crude oil futures in New York climbed 4.1 percent and added 4.4 percent in London.

Motorists have enjoyed fairly stable gasoline prices for the past year. On Friday, the average price of gasoline per gallon in New Jersey was $3.48, just a penny higher than it was a year ago, said Cathleen Lewis, director of AAA New Jersey. The national average was $3.64.

According to AAA, the average daily price of gasoline in Bergen and Passaic counties this year was tracking below the year-ago daily averages until April 12, when it rose to $3.41 a gallon, a half-cent above the year-earlier figure. Over the past two months, the average prices Bergen and Passaic motorists paid were at times more than 20 cents higher than the same date a year earlier.

Like Kloza, Lewis expects modest increases at local pumps this weekend _ as well as some holding fast and perhaps even a little price cutting by some station owners as they jockey for a competitive advantage.

"You may see fluctuations along the road," she said.

But the turmoil in Iraq does threaten to interrupt a long period of price stability, she said.

"Prices have been relatively consistent and without significant turmoil we anticipate that we would remain stable," she said. "Prices may go back down if [the fighting] is resolved quickly. If it becomes a longer conflict, then you will see prices start to hover at a higher point."

A sustained struggle in Libya in 2011 that led to the fall of leader Moammar Gadhafi caused the last oil-price spike.

The threat in Iraq is real. Sunni insurgents overran the northern city of Tikrit this week, threatening the Baiji refinery, which can process 300,000 barrels a day and supplies Baghdad. Iraqi Kurdish forces reportedly took control of the northern oil city of Kirkuk. About 75 percent of Iraq's production capacity is in the southern part of the country.

What's difficult to predict is what will happen if Iraq devolves into a civil war, Kloza said.

An increase of a nickel or dime on gasoline in the days ahead won't change the behavior of drivers such as Morgan Hires, 18, of Totowa.

"I don't know a whole lot about what is going on, but to me it doesn't matter if the price goes up or down," said Hires, who was fueling her car Friday at the Lukoil station in Woodland Park. "I'll need gas right now and I'll need gas later in the week, whatever the price is," she said.

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(c)2014 The Record (Hackensack, N.J.)

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Source: Record (Hackensack, NJ)


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