Motorists can expect to start seeing the effects of the Persian Gulf War at the gasoline pump in the next few days in the form of declining prices.
With oil prices tumbling because of oil traders' confidence that the war with Iraq does not pose a serious threat to the region's oil supplies and because world supplies of petroleum are ample, major oil companies already have begun cutting gasoline prices and are likely to continue to do so in the days to come, experts said.
Mobil Corp. of Fairfax, for instance, cut its wholesale gasoline price as much as 9 cents a gallon in some markets late last week, while Exxon Corp. knocked 5 cents a gallon off its wholesale gasoline price and 10 cents off its diesel fuel price. Other companies said they have made or plan similar cuts.
Some oil companies already have reduced their wholesale prices to within pennies of where prices were before Iraq invaded Kuwait Aug. 2, an event that sent gasoline prices spiraling more than 30 cents a gallon higher. And the decline is being helped along by a surplus of gasoline and other petroleum products caused by slackened demand for gasoline that resulted from the earlier price surge.
"Prices are dropping right away," said George Babikian, president of Arco Products Co., the marketing division of Los Angeles-based oil company Atlantic Richfield Co. "We're seeing drops on the street, right now, every day. ... The consumer ought to be dancing in the streets."
"My own view is that nationwide gasoline prices are going to continue the downward trend they've been on," said Tom Burns, an economist for San Francisco-based Chevron Corp. "I wouldn't be at all surprised to see a continuing slide."
The American Automobile Association said the price of self-service unleaded regular gasoline, the most popular grade, averaged $1.244 a gallon nationwide last week, just before the latest rounds of cuts were announced. The average price in the Washington area was $1.279 a gallon. Both are 15 cents off peak levels of a couple of months ago.
By contrast, the national and local averages were $1.08 a gallon when Iraq invaded Kuwait. That would seem to indicate that gasoline price cuts still have a way to go, especially with crude oil prices falling Friday to $19.20 a barrel, the lowest level since early July.
Some oil industry critics remain skeptical that gasoline prices will go down as quickly and sharply as they appeared to have gone up in August and September. "Clearly the companies are taking a more wait-and-see attitude about the retail price cuts," said Ed Rothschild, energy policy director at Citizen's Action, a Washington-based consumer advocacy group. "The question is when we're going to see it at a pump."
"We're going to see if oil is going to once again defy gravity" by going down more slowly than the price goes up, said Rob Krebs, a spokesman for the American Automobile Association's Potomac division.
Industry officials and analysts insist prices will go down quickly, especially given the sharp drop in oil prices recently. However, they caution, consumers shouldn't expect cuts in gasoline prices quite as dramatic as the one-third drop in crude oil prices that occurred in the oil market at the New York Mercantile Exchange last Thursday after the U.S. attack on Iraq. That's because much of that decline erased an increase in crude oil prices that came a couple of days before the war and never got reflected in gasoline prices.
An escalation of the Persian Gulf War, however, could push crude oil prices higher, analysts said.
Experts also said retail gasoline prices may not drop all the way to levels before the Iraqi invasion of Kuwait because of increases in gasoline taxes since that time.
The federal gasoline tax was increased 5 cents a gallon Dec. 1, and increases at the state level have averaged an additional penny a gallon in recent months. Virginia, for instance, raised its state gasoline tax by 5 cents Aug. 1, just as gasoline prices were beginning to accelerate; California has raised its state taxes 8 cents a gallon since then. Despite an outcry among consumers and politicians about soaring gasoline prices, which peaked at an average of $1.43 a gallon for unleaded regular in November in the Washington area, the Energy Department has said its investigations show no indications of illegal price gouging by the oil industry over the past 5 1/2 months.
TRACKING GASOLINE COSTS(DATA FROM THIS CHART WAS NOT AVAILABLE.