GAS COSTS MORE, BUT WHY? PRICE OF $1.689 PER GALLON IS HIGHEST IN YEAR.

Byline: Brent Hopkins Staff Writer

Gas prices have crept to their highest level in a year, but analysts remained split Wednesday as to the underlying cause.

Experts do agree that fears of a war with Iraq have pushed the price for crude oil to more than double its level a year ago, jumping from $16 per barrel last February to $33.69 on Wednesday. Retail prices have climbed, but far less dramatically, with the Automobile Club of Southern California reporting Los Angeles prices at $1.689 per gallon Wednesd they were in the $1.251 range, according to numbers provided by the California Energy Commission.

``The fear of war has driven the price up to where it is now,'' said Rob Schlichting, a spokesman for the Energy Commission. ``It's amazing how volatile it is, and so much is fed by rumor.''

The futures market for crude oil spiked Wednesday morning, prior to Secretary of State Colin Powell's speech before the United Nations detailing Iraq's alleged violations of U.N. Resolution 1441. Mark Mahoney, who follows the West Coast gas market for the Oil Price I Service, saw the price jump 70 cents before the speech, then plunge 66 cents less than two hours after its conclusion. If war breaks out, he expects a quick jump in the price of crude to the $40 range, then a slow moderation.

``We'd definitely see them higher right off the bat,'' he said. ``The futures traders would immediately sense that we'd have some interruption from the Middle East. In the Gulf War, the price skyrocketed in the first few days. But then they sort it out.''

Auto Club spokesman Jeff Spring agreed that the futures market, although often completely unrelated to the actual events, pushes retail prices more than the normal supply-and-demand relationship dictates.

``All the markets are intertwined now,'' Spring said. ``Since people all have access to these numbers, retailers will change pump prices right away when they see a change in the futures market.''

Further complicating things, Mahoney noted the switch from winter formulation gas, which combusts more easily to aid motorists in cold climates, to summer blend will occur at the month's end, which historically causes a price increase as well. Factoring in the decision by refiners to switch from clean-air additive MTBE to ethanol ahead of Gov. Gray Davis' Dec. 31 deadline, Mahoney says prices could jump up to $2 per gallon.

``If we go to war with Iraq by April, you'd see some pretty high prices because of the price of crude and the switch to ethanol,' figure out a way to get out of this, however, it'll go down. This market's set up for a huge downward correction.''

CAPTION(S):

chart

Chart:

IRAQ VS. GAS PRICES

SOURCE: Daily News research

Daily News