Iraq Crisis Hits US Wallets
Higher fuel prices mean costlier airline tickets, supermarket produce
LOOK for gasoline prices to remain high but stable, airline tickets to climb even more than they already have, and ketchup and cantaloupe to cost a few cents more within a couple of weeks. Now that some of the initial panic has subsided amid the taut confrontation in the Mideast, economists and consumers alike are trying to gauge where the price of oil will go from here and what the impact will be on the American pocketbook.
The exact impact, of course, will depend on whether the brinkmanship between Iraq and much of the rest of the world escalates beyond bellicose words to war.
Barring a duel between tanks or an exchange of nerve gas in the desert, many analysts expect the price of crude to swing between $20 and $30 a barrel for now - even as the price increases that have already occurred work their way through the American economy, down to the local produce shelf.
At the gasoline pump, where prices have been among the most volatile, that means the numbers shouldn't ratchet up or down dramatically in the next few days, analysts say. That's the good news. The bad news is that gas prices are already hovering at the highest level in years - and the era of regular unleaded fuel for $1.05 a gallon may become a permanent part of nostalgia.
``I think they will be stable at the pump for the next few days,'' says Michael Doyle of Computer Petroleum Corporation, a St. Paul, Minn., firm.
What they do will depend in part on the next political developments and on how much Saudi Arabia and other countries increase their output of oil in the weeks ahead. The Saudis, along with Venezuela, Mexico, and several other nations, have pledged to step up production to help offset the supply lost by the embargo of Iraq and Kuwait.
Still, some analysts don't think this will be enough and, even if it is, there may be a gap between the time when the last of the Iraq-Kuwait crude is added to inventories and the new crude works its way into the system. This is one reason pressure has been building on President Bush to release oil stored in the US Strategic Petroleum Reserve.
``I don't think gasoline prices will come down in this atmosphere,'' says Erkki Adourian of Energy Security Analysis, a Washington, D.C., consulting firm. Peter Beutel of Merrill Lynch Futures says they could come down 2 to 5 cents a gallon by Labor Day if tensions ease and the Saudis and others turn up their spigots enough.
All agree that the days of cheap gasoline are over.
``We are definitely in a new region for prices,'' says Dillard Spriggs, president of Petroleum Analysis, a New York firm.
While gas prices have dipped slightly in recent days, this has done little to ameliorate consumer outrage over the earlier hikes. Unleaded gas jumped an average of 16 cents a gallon nationwide in the first few days after the Iraqi invasion.
Since then, Texaco, Conoco Inc., and Phillips Petroleum, among others, have reduced wholesale prices 2 to 6 cents a gallon, while others - including the Atlantic Richfield Company, Getty Petroleum, and Unocal Corporation - have frozen prices.
Oil companies have justified the gas price hikes by arguing that the price of crude was going up even before the Mideast tumult and that, even with the latest increases, they still haven't passed on all the added costs. They also contend oil price changes affect gasoline prices almost immediately.
Even so, consumers and politicians continue to sniff out greed. Massachusetts has promulagated new emergency regulations to prevent ``gouging.'' In Washington, the consumer group Citizen Action is asking all motorists to boycott higher-priced gasoline stations. By its arithmetic, there are 140 million cars in the United States. If every driver buys one less gallon of gas a week, it will cut oil demand 476,000 barrels a day.
The anger has only been slightly more muted for recent fare increases by airlines. Several of the largest carriers - including Delta, United, and American - have increased fares or imposed temporary surcharges of 5 to 10 percent.
They, too, bristle at charges of ``profiteering.'' They note that costs for jet fuel, which, next to labor, are their highest expenses, have skyrocketed in recent days.
The ticket increases may not be over. Lee Howard of Airline Economics Inc. says if oil remains in the $25-per-barrel range, it should end up in an 8 percent to 10 percent fare increase across the board.
At the grocery store, consumers may see some modest price hikes in a few weeks if oil prices remain high. Analysts say the first items to go up will be perishable goods - such as fruits and vegetables - transported by truck.
In California, the nation's largest food producer, farmers are harvesting tomatoes, grapes, peaches, and cantaloupes. Many growers have seen diesel prices jump 25 percent in a week.
``It's anybody's guess how much they might go up - maybe 3 to 5 percent for some products,'' says Mike Henry of the California Farm Bureau Federation.