Cold in the Northeast, probable war with Iraq and strikes in Venezuela are driving up gas prices for consumers in Baton Rouge.
A gallon of regular gas cost about $1.591 Sunday in the Baton Rouge area, according to AAA’s Daily Fuel Gauge report.
Gas prices for the past year have been on the rise, from an average of $1.07 last February to the city’s recent record high of $1.597, recorded last week.
Mass communication junior Raianne Guillot filled up with gas Sunday at the Circle K at Burbank Drive and East Boyd Drive. She paid $10 for 6 1/2 gallons of regular gas.
Guillot said gas prices are getting ridiculously expensive.
“I usually get the 89 [octane], but I’ve been getting the 87 because I’m poor,” she said.
Guillot said she doesn’t know what is behind the increase in gas prices.
Although gas prices have increased across the state, they aren’t the highest in the nation.
Traditionally, gas prices are cheaper in the South than in other parts of the nation. Gulf Coast refineries are responsible for nearly half of the gas produced in the United States, and the South benefits from close proximity to the refineries.
Why are gas prices rising?
The price of gas at the pump is related closely to the price of crude oil, which makes up 49 percent of the gasoline price, according to the federal government’s Energy Information Administration Web site.
Prices for crude oil have increased more than $15 in the past year, from about $20 per barrel to between $35 and $37.
Other factors affect gas prices. also.
The recent cold snap in the Northeast has refineries scrambling to keep up with the demand for heating oil and delaying gasoline production. This reduces inventories of gasoline and drives up prices.
How do international events affect gas prices?
The United States can’t produce enough oil to satisfy its needs and, therefore, depends on imports.
Saudi Arabia is the largest provider of oil to the United States, importing an average of 1.5 million barrels per day in 2002, according to the EIA.
In most commodities, price is determined by supply and demand. Because so many countries depend on oil as their primary commodity, oil is heavily affected by the international political arena, said Larry Wall, Louisiana Midcontinent Oil and Gas Association spokesman.
The current situation in Iraq is driving prices up because oil buyers are anticipating a disruption in the supply of oil if war erupts between the United States and Iraq.
“Market expectation is what drives the price,” said Wumi Iledare, associate professor of petroleum economics and policy. “People are very worried about the possibility of war in the Middle East. What you see at the pump is the response of vulnerability from oil import supply.”
Iledare said 66 percent of the world’s oil comes from the Middle East, and any disruption in the flow of oil from that area affects United States’ prices, even if the oil wasn’t designated for the United States.
“It will affect the price because the market is more global now,” Iledare said.
The United States is attempting to diversify where it gets its oil, depending less on the Middle East and more on Canada, Mexico and Venezuela, Iledare said.
Venezuela is the fourth-largest provider of crude oil to the United States. Since the strike began in December (see sidebar), Venezuela has imported half as much oil as usual to the United States, reducing the inventory of crude oil.
“In the market, everything depends on the inventory,” Iledare said.
The strike in Venezuela is putting a crimp in the world’s supply of oil, Wall said. “Supply and demand has simply come into effect.”
Although the Venezuelan oil strike is important, Iledare believes it isn’t the most important cause behind the increase in gas prices.
“What we have now is the result of uncertainty in the [Persian] Gulf,” he said. “It is driven by that more than Venezuela.”
What will make gasoline prices drop?
“The simple answer is the price of oil must drop for gas prices to drop,” Wall said.
For the oil prices to drop, oil production from Venezuela must increase and the United States and Iraq conflict must dissipate, Wall said.
“It either has to go away altogether, or war has to be quick,” he said. “Then, oil prices will go back down.”
Iledare said it is easier for gas prices to rise than to fall because market reaction to higher prices is faster.
“If the price of crude oil rose today to $40, the price only would take about two days to rise,” Iledare said. “If the price dropped today to less than $30, the price may take a week to drop.”
Iledare said it is important for consumers not to put too much blame on local gas retailers.
“We should not crucify the sellers of gas,” he said. “They are responding to the market.”