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Syrian conflict may be felt at pump

Crude oil prices climb as the U.S. weighs military action in the Middle East.

August 28, 2013|By Shan Li and Andrew Khouri
  • Crude oil and gas futures rose in the past few days as the U.S. contemplates military action against the Syrian government for apparently deploying chemical weapons.
Crude oil and gas futures rose in the past few days as the U.S. contemplates… (Rick Bowmer, AP )

Motorists hitting the road over the Labor Day weekend may find themselves paying more at the pump as the Syrian conflict fans tensions in the Middle East and roils gas markets.

Experts speculate that prices could shoot up 10 cents a gallon or more in the coming days, a reversal of the lower prices road-trippers have enjoyed this summer thanks to increased U.S. production and higher inventories. A gallon of regular gasoline might again vault past $4.

Prices "are definitely going up," said Amy Myers Jaffe, executive director of energy and sustainability at UC Davis. "The situation in the Middle East is very volatile, and it goes beyond the Syrian conflict."

The question is: How much will prices rise, and for how long?

Crude oil and gas futures rose in the past few days as the U.S. contemplates military action against the Syrian government for apparently deploying chemical weapons in a deadly attack against opposition forces and civilians last week.

The price of crude oil rose $1.09 to $110.10 a barrel Wednesday on the New York Mercantile Exchange. In Europe, Brent North Sea crude, used to price U.S. oil imports, jumped $1.85 to $116.21.

That increase has yet to trickle down to consumers, who have benefited from huge bumps in domestic production in states such as North Dakota and Texas. In California, the average cost of a gallon of regular gasoline fell to $3.809 on Wednesday, down almost 30 cents from $4.138 a year ago, according to the AAA Fuel Gauge.

But motorists on Labor Day weekend, which traditionally marks the end of the summer travel season and the start of lower prices, may have to shell out a bit more, analysts said.

Syria is not a big oil producer, but the worry is that the civil war — and any further U.S. engagement in the conflict — could spread unrest across a region already rocked with turmoil and uncertainty since the Arab Spring in 2011.

Oil prices have been rising since July, when tensions in Egypt escalated into a crackdown on supporters of ousted President Mohamed Morsi. Although not an oil producer, Egypt controls the crucial Suez Canal and therefore has power over a major shipping lane.

Protests in Libya have forced the closure of some oil terminals, contributing to a sharp reduction in exports compared with the 1.6 million barrels the country was shipping before the overthrow of its former leader, Moammar Kadafi. Meanwhile, Iraq may suffer its first drop in annual oil output in three years.

Those issues may eventually pinch drivers such as John Ferris, 61. The Porter Ranch resident believes that a hike in gas prices is imminent because of Syria, and plans to rein in his driving as a result.

"Until they resolve issues over there, we'll be a victim," Ferris said, just after gassing up a white SUV near Union Station in downtown Los Angeles.

Any price increases would also hurt taxi driver Mikael Ashchyan, who pays for his own gas. The 61-year-old from Montebello said any big jump may force him to stop working.

"If they go over $5 [a gallon], I am not going to drive anymore," he said.

Beyond the open road, higher oil prices may also have ripple effects on the airline industry, where the biggest expense is jet fuel.

Experts say the effect on airfares should be minimal because the industry is moving into the slowest travel period of the year. With dropping travel demand between Labor Day and Thanksgiving, airline experts say carriers won't be able to hike fares by much. Instead, the industry probably will respond to a fuel price surge by eliminating some of the cheapest discount fares, they said.

"I fully expect U.S.-based carriers to attempt to pass on fuel increases to customers with limited success, given the tepid economy and current seasonal slowdown," said Rick Seaney, founder of Farecompare.com, a site that monitors airfares.

The end of summer should cushion most, if not all, of the effect on Californian drivers and other motorists across the country, analysts said. Prices naturally fall as the amount of driving drops after Labor Day.

"We are producing 2 million barrels of crude a day more now in the U.S. than we were during the beginning of the Arab Spring," said Tom Kloza, chief oil analyst at GasBuddy.com. "We are a lot less dependent on Middle East oil than we used to be."

Barring a hurricane in the Gulf of Mexico or unparalleled conflict in the Middle East, he said, "we're likely to see very temperate prices for the rest of the year."

But if Egypt or Syria does spark a massive regional conflagration, experts said, all bets are off.

Jaffe of UC Davis pointed out that the Syrian conflict is pitting nearby nations, some of which are big oil producers, against one another. Iran is supporting the government of Syrian President Bashar Assad, while Saudi Arabia and Qatar are backing the rebels.

"Regardless of what the U.S. is going to do," she said, "an escalation could manifest itself and that could translate into higher oil prices and higher gasoline prices."

shan.li@latimes.com

andrew.khouri@latimes.com

Times staff writers Ronald D. White and Hugo Martin contributed to this report.

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