11:16 PM CDT on Friday, July 21, 2006

By LEE MCGUIRE / KVUE News

KVUE News

AAA officials say Austin-area gas prices are close to breaking a record.

Rising oil prices are having an impact on gas prices. Pump prices continued their climb across the Austin-area and are close to breaking a record.

The latest AAA report shows gas is now selling for $2.86 a gallon, up three cents from last week. That's 15 cents higher than at this time last month. It's also 64 cents higher than at this time last year.

The all time high for regular unleaded in Austin is $2.92. That record was set just after Hurricane Katrina, when prices jumped 50 cents in a week.

At the time, those prices were a huge shock, but little by little, we're creeping right up to those levels once again.

Ehud Ronn, director of the Center for Energy Finance Education at U.T's McCombs School of Business, said oil prices have gradually, almost imperceptibly, returned to similar levels.

"We've seen this before, and, alas, this is the current crisis du jour," he said.

Ronn has been crunching the numbers for years and says this sustained high price of oil is the result of continuing nervousness about three factors: Missile tests in North Korea; the growing conflict in Israel and Lebanon; and, most important, Iran's drive to become a nuclear nation. Since that country is so close to oil-rich Saudi Arabia, ongoing problems are spooking the markets.

"The concern is more about possible disruption in supplies, so I don't know that there is anything new. It's just the manifestation of the latest type of crisis," Ronn said.

And in that, there is good news. If the current crisis in the Middle East doesn't spread and if diplomacy can resolve or even contain the threat from Iran, he says gas prices should drop, a lot.

"It could be in the $2.25 range, which would be a 50 cent drop or even more," he said.

That's a lot of "if's," but Ronn says today's prices are high because of concerns things will get worse.

If they get better, the prices should drop. That is, unless there's another big hurricane.