DEARBORN — Political and military turmoil in the Middle East traditionally spikes gas prices in the United States and around the world. Amid talks of possible U.S. military action against the Syrian regime, the average price for a gallon of gas in Michigan went up 11 cents this week, even though Syria is not a major oil producer.
According to the U.S. Energy Information Administration, a federal government agency that keeps track of energy costs, the average national price for a gallon of gas in the first week of February 2011, before the start of the Libyan Civil War, was $3.13.
But as the uprising against Colonel Qaddafi began to make international headlines, gas prices started going up.
By the time NATO forces, with the participation of the United States, joined the war on the side of the rebels in the second week of March, the price soared to $3.56 per gallon; a 13 percent increase, even though Libya produces only 2 percent of the world’s oil.
In the last week of the war in mid-October, the average price for a gallon of gas reached $3.85. Days after the rebels seized Tripoli, officially ending the war, the price dropped to $3.49.
By the end of 2011, the price was as low as $3.22. However, it has not gone below $3.20 since then. Libya has yet to reach pre-war oil production levels.
Tatsuma Wada, professor of international finance at Wayne State University, said the rise in gas prices during times of instability has to do with speculation about oil production, not the amounts of oil produced.
He explained that at times of uncertainty, suppliers expect the production to go down, so they hold onto their inventory, decreasing the supply, while demand goes up, because people want to store gas before it becomes scarce.
When supply goes down and demand goes up, prices naturally increase, he explains.
“If you own a company and you don’t know that much about the future, you become reluctant to sell your gas, even if there is no problem in acquiring the gas. Supply goes down, even though production is still the same,” he said.
Wada said a military strike against Syria could take gas prices even higher, especially if it is open-ended.
“If we don’t know how and when it ends, the strike would increase the level of uncertainty, creating another round of speculation. Price will go up,” he said.
However, he added that if the strike ends quickly, it might not affect the prices severely.
Allie Berry, vice-president of Armada Oil and Gas Company, said that the situation in Syria will not have an “outrageous” effect on gas prices beyond this week’s price hike, even if the United States intervenes militarily.
He explained that gas prices are traditionally low in September, so the initial 11 cent increase per gallon is significant.
“Any future increase, related to Syria, will likely be limited to 10 cents,” he said. “I don’t see it going more than we already saw.”
Berry added that oil companies play a major role in deciding the prices.
“If they want to play the game, they can tighten the price on the supply to jump the price,” he explained. “But I do not see why they would do that. Business is very slow already.”
He also expected the price not to skyrocket because the U.S. crude oil inventory (the country’s stored oil supply) is at the normal level of 2 billion barrels.
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