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          Front Page




Terrorism Adds 36 Cents to Gallon of Gas, Experts Say

By H. Josef Hebert
The Associated Press
    WASHINGTON— A "fear premium" is driving up gasoline prices well past $2 a gallon.
    Motorists may be paying as much as 36 cents a gallon more at the pump because of the petroleum industry's anxiety that terrorists might disrupt oil supplies, a fear that increased with two killing rampages by al-Qaida-linked gunmen at oil compounds in the heart of Saudi Arabia.
    Estimates vary, but some energy economists said as much as $10 to $15 is being added to the cost of every barrel of crude oil because of fear that terror in Saudi Arabia, violence in Iraq or unrest elsewhere could disrupt oil supplies.
    The fear factor went up a notch over the long holiday weekend with the attack in Khobar, Saudi Arabia, that killed 22 people, mostly foreign oil workers. It was the second attack in a month against oil workers in the Islamic kingdom.
    Some analysts believe speculators are using the fear of possible disruptions to game the system and push prices beyond where they should be even assuming some disruption.
    The Bush administration's high-profile stance that it will not use its emergency government oil reserves has made it easier for oil speculators to drive up prices, contends Jaffe.
    "He is giving the (speculators) a security blanket," said Fadel Gheit, an energy strategist for Oppenheimer and Co. in New York. He added that traders have been able to push up prices for oil deliveries at a future date without fearing they may be caught in a price squeeze if the government should release oil from its emergency stocks.
    Oil prices surged more than $2 a barrel Tuesday, the first trading day since the Khobar attack. The price of gasoline jumped 6 cents a gallon on the New York Mercantile Exchange.
    "There obviously is a fear premium," said Seth Kleinman, an oil market analyst at PFC Energy, a Washington-based consulting firm. While there always has been such a premium in oil prices, with the targeting of Saudi's oil industry, "It's gotten a lot further, and it's gotten a lot bigger."
    One reason is that Saudi Arabia, which pumps 10 percent of the world's oil, is the only producer that has significant spare capacity to produce more as needed to stem demand and prices, economists said. While the attacks did not target Saudi pipelines, terminals or oil fields directly, the psychological impact has rattled the markets.
    After receding somewhat last week, the price of crude for July delivery jumped 4.7 percent to $41.75 a barrel Tuesday on the New York Mercantile Exchange and soared in London by $2.02 a barrel.
    "Increasing terrorist activities around the world and uncertainty and instability have driven oil prices over the last six months. It's not a lack of supply," Gheit said.
    Gheit estimates that when oil prices peaked at nearly $42 a barrel, as much as $15 might have been generated by traders pushing up prices because of worry over disruptions. Other estimates have put the fear premium at $5 to $12 a barrel.
    The size of the premium, whatever it may be, is of less importance than that it exists and has helped propel gasoline prices to record levels to the current average of more than $2 a gallon nationwide.