CRISIS IN THE PERSIAN GULF : Crude Rises, but Pump Prices Dip

Iraqi President Saddam Hussein’s call for an Arab uprising against the United States frayed oil market nerves Friday and boosted crude prices. Gasoline prices at the pump, meanwhile, appeared to drop slightly Friday.

In the oil market, traders remained cautious and appeared unwilling to take risky positions ahead of an uncertain weekend. As a result, energy prices closed off their highs for the day.

West Texas Intermediate for September delivery, the U.S. benchmark crude, rose 56 cents to close at $26.23 a barrel after trading as high as $26.60. Unleaded gasoline rose 3.03 cents to 79.45 cents a gallon.

“It doesn’t look like Hussein is backing down at all, but we are in a trading range here,” said Tom Bentz, director of trading at United Energy Inc.

Hussein called for Arabs to rally together against foreign intervention and urged Egyptians to bar foreign ships from passing through the Suez Canal, a vital link between the Mediterranean Sea and the Persian Gulf. He also lashed out at Arab leaders who opened their lands to U.S. troops.

Traders said players bid up the market at the opening and in the first hour in anticipation of developments out of the Arab summit in Cairo and in reaction to Hussein’s speech.

Bentz added that strong buying in oil products, particularly gasoline, helped lift crude prices. He said gasoline looked strong because, given consumer fears of gasoline lines, it seemed a surer thing than crude.

Distant-month contracts of gasoline and heating oil were up the daily limit of 2 cents a gallon, while comparable crude contracts were up only moderately. Volume was described as light.

Meanwhile, the American Automobile Assn., in its daily survey of gasoline stations, said the average price for self-serve, unleaded fuel dipped nationwide by 0.3 cent to $1.25 per gallon--the first decline since Iraq’s Aug. 2 invasion.

AAA also said there are “adequate gasoline supplies to meet all current travel needs as well as those over the upcoming Labor Day holiday unless conditions significantly worsen in the Middle East.”

In Los Angeles, Arco Products Co. President George Babikian released his promised white paper contending that oil companies are being unfairly accused of gouging consumers.

Gasoline price hikes were coming anyway, Babikian said Friday, because of higher crude oil prices on the spot market--up from $15.50 a barrel in mid-June to $20 by the end of July, before the Mideast crisis. He said that contrary to popular belief, oil price changes in the spot market affect gasoline prices within days, not weeks. About 47% of the oil used by U.S. refiners is subject to such “nearly instantaneous” change, he said.

Then when spot prices go up, said Babikian, even refiners who do not buy on the spot market feel compelled to raise their prices too, to avoid customer runs on their low-priced gas and the risk of depleting their own gasoline supplies.

“Many of the price increases made were defensive,” Babikian said.

Crude oil price hikes came again quickly after Aug. 2 from the “shock of the invasion,” according to the Arco position paper, as well as low gasoline inventories. Particularly on the West Coast, noted Babikian, virtually every oil company was doing refinery maintenance work during the 2nd quarter.

Even so, wholesale and retail prices haven’t increased as much as prices on the spot market, Babikian noted. He counseled consumers to avoid panic, particularly topping off their auto gas tanks, since U.S. reserves are now high and, unlike the earlier gas crisis, government price controls have not been imposed. Babikian blamed price-control mechanisms for soaring prices at the pump during the last oil crisis.