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War or no war, gas prices likely to go up

©Associated Press
March 2, 2003

NEW YORK -- If history is any guide, consumers should brace for even higher gasoline prices, which are already above $2 a gallon in some places.

The wholesale price of gasoline has risen between March and May every year since 1985, according to an analysis by Cameron Hanover, an energy risk management company in New Canaan, Conn. Pump prices have tended to follow suit, statistics kept by the Energy Department show.

"We're expecting a further round of price increases at the retail level," said Jacob Bournazian, an analyst at the Energy Information Administration, the statistical arm of the Energy Department. "It could be anywhere from 4 to 8 cents."

The national average retail price for regular unleaded last week was $1.66 per gallon, 54 cents above year-ago levels.

The springtime pattern of rising gasoline prices coincides with the period when refiners shut down equipment, scrub it clean and switch from winter- to summer-grade fuel ahead of the peak driving season. That process, known in the industry as turnaround, causes supplies to temporarily shrink and prices to rise.

Whether the 18-year seasonal trend is extended -- or ended -- in 2003 depends on factors ranging from a possible war in Iraq to the supply of fuel from Venezuela, whose oil industry strike has resulted in sharply reduced exports to the United States.

If U.S.-led military action against Iraq proceeds quickly and without any disruption in the flow of Middle East oil, analysts think the price of crude, now close to $37 a barrel, could drop quickly, bringing today's high gasoline prices down, too.

"That could kill the (seasonal) trend," said Ed Silliere, an analyst at Energy Merchant LLC in New York. The ability of refiners in the United States, Europe and elsewhere to make up for the expected shortfall from Venezuela could also tip gasoline prices in one direction or the other, Silliere said.

Still, Silliere and other analysts said signs point to the annual trend being magnified by geopolitics and the current supply-demand imbalance. Nationwide inventories of gasoline are nearly 3 percent below year ago levels with Venezuela's refineries running far below capacity, and analysts said the situation could get worse.

Peter Beutel, president of Cameron Hanover, said the confluence of outside factors makes it difficult to predict what will happen in gasoline markets this spring, but his advice to clients in a recent report was this: Don't make large bets prices will fall.

"We have to ask ourselves if we want to fight this kind of odds," he said.

In 16 out of the past 18 years, June gasoline futures trading on the New York Mercantile Exchange rose between March 1 and May 15. In 1993 and 1998, the June contract rose between March 1 and May 1, before falling two weeks later. Gasoline for April delivery was up 2 cents to $1.04 a gallon Friday on the Nymex.

The monthly average for retail prices, excluding taxes, was higher in May than in March in 15 out of the past 18 years. Pump prices declined slightly over that period in 1986, 1997 and 2000.

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