Unrest in Middle East pushes gas cost higher

Even with increased domestic production, prices are soaring again

In early July, Egyptian soldiers guarded a border area beset by violence after the Islamist president, Mohammed Morsi, was ousted.
In early July, Egyptian soldiers guarded a border area beset by violence after the Islamist president, Mohammed Morsi, was ousted.

So US gasoline prices are still influenced by world events.

Even though oil imports are approaching 20-year lows, and the United States is enjoying a boom in new fuel sources, gasoline prices are soaring again because of political troubles halfway around the world. The civil unrest and military coup in Egypt — a relatively small exporter of crude oil — and the ongoing in-fighting in Syria have energy markets worried that the unrest could spread to other oil-producing countries in the region, disrupting supplies.

In just the last week, gas prices in Massachusetts jumped 14 cents, to $3.62 a gallon, according to AAA Southern New England. Crude oil prices are also rising quickly and now top $100 a barrel. Analysts believe gas prices are going to climb another 5 cents or more a gallon.


This comes as the much higher output from domestic sources, particularly underground shale fields in North Dakota, as well as crude oil from western Canada are adding billions of gallons of crude oil per year to US supplies. The growth has been enough to raise the prospect that North America would soon be cushioned from worldwide oil-price shocks.

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But there are still shortcomings in the pipeline — literally — that are contributing to higher gas prices. There isn’t enough pipeline capacity to transport all the oil produced in North America, and not enough refinery capacity to convert the oil into gasoline.

“There’s a lot of things at work here,” said Joseph H. Petrowski, chief executive of Framingham’s Cumberland Farms Gulf Oil Group, which has 3,000 gas stations in 29 states.

And though the flow of imported oil has been steadily falling, the United States remains a huge consumer of foreign fuel and will continue to be subject to global events, said Jason Schenker, president of Prestige Economics LLC in Austin, Texas.

“It’s still a global market,” said Schenker, whose financial consulting firm monitors the global oil industry. “We’re subject to global demand because we’re still importing millions of gallons per day from overseas.”


There is some disagreement among energy specialists on where prices will head next.

Sarah Emerson, president and managing principal at ESAI Energy LLC in Wakefield, said the recent spikes are the result of temporary problems that periodically strike the energy markets, such as downed refineries along the East Coast, and that there is nothing fundamentally amiss to keep prices high.

“This is a tempest in a teapot,” Emerson said. “Oil prices will come back down. I just don’t know exactly when.”

Petrowski is convinced that American consumers will eventually benefit from the surge in North American oil production. He predicted that crude oil prices one day could fall as low as $50 per barrel, perhaps pushing US gas prices below $3 a gallon.

“The good news is that we’re eventually going to see lower prices,” he said.


Others are less cheery about the domestic outlook. For example, some fear that the North Dakota oil fields may be less promising than they appear because the source — underground shale formations — traditionally produce a lot of oil in the early stages of drilling and then fall off shortly after.

John Hummel, president of AIS Futures Management LLC in Wilton, Conn., said the expectations for ever-growing US oil production are “absolutely overblown.”

He also expects global events will continue to pressure oil prices higher, noting that developing countries such as China and India are growing fast and will need more and more oil in coming years.

“We believe that the global market has been and will continue to be tight, with very slow growth in global production and higher demand,” said Hummel.

John Howell, executive director of the New England Service Station and Automotive Repair Association, said he just wants to see prices fall soon.

Owner of a Mobil station in Lynnfield, Howell said independent station operators and franchisees only get to keep a set 12 to 15 cents from every gallon sold, regardless of the price that consumers pay.

When gas prices rise, motorists often buy less gas, hurting individual station owners and operators, he said. “We don’t want higher prices.”

But that’s what he and other station owners are seeing across the state.

In the past week alone, station dealers have seen their prices from wholesale terminals jump by about 23 cents, suggesting that more price increases are on the way, Howell said.

“It’s getting ridiculous,” he said.