Experts: Iraq Battles Will Drive Gasoline Prices Higher

Friday, 13 Jun 2014 02:01 PM

By Dan Weil

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Oil prices have risen to nine-month highs after an al-Qaida-inspired group vowed to march on Baghdad after capturing two key Iraqi cities this week, including Mosul, which is in an area that is a key gateway for the country's crude, and that will translate into higher gasoline prices, experts say.

So far, the fighting in Iraq has had little impact on prices at the pump. Regular gas prices average $3.65 a gallon Friday, little changed from Thursday, a week ago, a month ago and a year ago, according to AAA's Daily Fuel Gauge Report.

Tom Kloza, senior energy analyst at GasBuddy, told USA Today that the regular gas price would probably rise 5 to 10 cents in coming days and remain buoyant through the summer.

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"We're not looking at a Gas-zilla event. It'll probably be a slow drift higher rather than skyrocketing,'' he said.

"Right now, I don't believe we are on the threshold of $4, which can spark outrage, malaise and a bit of demand destruction," Kloza told CNNMoney.

But Mark Luschini, chief investment strategist at Janney Montgomery Scott, told The Wall Street Journal that a sustained increase in oil prices could send gas above $4 a gallon.

Gas prices usually climb 2 cents to 2.5 cents per gallon for every dollar that crude rises, Stephen Schork, editor of The Schork Report, told CNNMoney.

U.S. crude oil gained 38 cents to settle at $106.91 per barrel Friday, the highest level since Sept. 18.

Schork said gasoline prices might advance more than 20 cents in the next two weeks if oil prices keep rising.

Iraq now exports approximately 2.5 million barrels a day of crude, and approximately 300,000 barrels of that go to the United States, according to the Energy Information Agency. Those 300,000 barrels represent approximately 4 percent of U.S. imports.

While OPEC produces 30 million barrels of crude a day, supply outages elsewhere, such as Libya, have made Iraq's output more important.

"That loss of Iraqi oil directly, you could argue, is not going to have much of an impact on the U.S. But the fact that 2 million barrels of Iraqi oil is going to Europe and Asia means world supply could tighten," Andrew Lipow, president of Lipow Oil Associates, told CNBC.

"The question is, who is going to fill the gap? Saudi Arabia? That's what the market is looking at,'' John Kingston, global news director for Platts Energy, told USA Today.

Oppenheimer senior energy analyst Fadel Gheit believes that crude prices might climb much further.

"If Iraq stops exporting oil, . . . add that to the disruption in Libya, the situation in Nigeria, you'll have a total of more than 4 million barrels of lower supply worldwide," he told CNBC.

"And that could push oil prices to a much higher level — maybe $10, $15 higher."

Using Schork's rule of thumb that would push gas prices 20 cents to 38 cents higher.

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