Holding one’s breath about the fuel price dip

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Fuel prices in the U.S. continued to take a welcome nosedive this week, according to data tracked by the Energy Information Administration (EIA), with diesel and gasoline dropping an average of 4.2 cents and 4.9 cents per gallon, respectively, across the country.

Yet concerns continue to grow that this may be a short lived trend, as the ongoing civil war in Syria and the bellicose saber-rattling by North Korea may generate an “about-face” movement for fuel pricing.

The EIA highlighted Syria as one of the largest near-term worries in this regard, as that nation’s energy sector has been “challenged” since the onset of what’s become a drawn out and bloody civil war nearly two years ago back in March of 2011.

While the agency stressed that Syria is not a “major player” in the global energy market, because of its location, the country has significant potential to be an important “energy transit” nation – and the ongoing war is preventing Syria from realizing that potential.

Indeed, EIA said Syria was one of the larger energy producers in the eastern Mediterranean region before the start of civil discord in early 2011, with a well-developed domestic pipeline network. In May 2011, Iran, Iraq, and Syria agreed that Iranian natural gas would be sent to Syria through Iraq, which followed proposals to build two crude oil pipelines and one natural gas pipeline to flow Iraqi products to the Mediterranean Sea.

Yet all of those plans are “stalled,” the agency noted, as Syria's attempts to take on a bigger role as an “energy transit” country are unlikely to make significant progress until what EIA called its “situation” stabilizes – meaning that nothing is going to happen while the bullets, bombs and rockets are flying.

As of October 2012, the Syrian Minister of Petroleum and Mineral Resources estimated the direct and indirect costs of the war to the Syrian oil industry to be $2.9 billion, most of which reflects the loss of Syria's oil exports because of sanctions, while direct damage to the country's energy infrastructure is estimated at $220 million.

Then there’s North Korea’s increasingly bellicose rhetoric about going to war not just against neighboring South Korea but the U.S. as well. That’s unsettling to say the very least, with any type of armed conflict sparked by North Korea likely to cause a surge in oil prices worldwide.

For now, though, U.S. fuel prices are in retrograde though they remain quite high. For example, the EIA said diesel remains above $4 per gallon and gasoline above $3.50 per gallon in every region of the country, despite two weeks of price declines.

Indeed, over the last two weeks, retail fuel pump prices are down 7 cents per gallon for diesel and 7.4 cents for gasoline, the agency noted, and are now far less compared to retail pricing during the same week in 2012. By comparison, diesel this week is 3.5 cents per gallon cheaper compared to the same period last year, while gasoline is a whopping 11.2 cents per gallon cheaper versus the same week in 2012.

Still, can such price declines continue in the face of Syria’s existing conflict and North Korea’s threat of war? Much remains to be seen where that’s concerned.

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