CRISIS IN THE PERSIAN GULF : Oil and Gasoline Prices Continue to Move Higher : Energy: Arco says that its pump prices have fallen too low and that it will lift its freeze. The Justice Department, meanwhile, is asking oil companies to explain the increases.

The relentless buildup of pressure in the Middle East drove oil and gasoline prices still higher Thursday, prompting the West Coast’s biggest gasoline peddler to lift the price freeze it imposed Aug. 8.

Atlantic Richfield Co. said its pump prices had fallen too far below the market--as much as 13 cents a gallon in some locations--and that it would raise its prices to dealers in those areas to prevent further runs on supplies.

Arco’s higher wholesale prices will likely be passed on to motorists in short order.

George H. Babikian, president of Arco’s gasoline refining and marketing arm, said the company was raising prices “reluctantly” and only in areas where the price gap with competitors is highest. The increases will average 2.5 cents a gallon, he said.

Analysts said Arco had good reason to be reluctant and called the company’s price-freeze strategy a sales bonanza that won it a big increase in market share that easily offsets any financial penalty from lower prices.

Arco, already No. 1 in the huge West Coast gasoline market and the price leader, was first to impose a price freeze after President Bush’s plea Aug. 8 that oil companies show pricing restraint in the face of threats to Middle East oil supplies.

It alone has maintained a freeze while competitors raised prices, and Babikian said sales volume, as a result, had jumped 19%. He called Arco’s policy a “continuing commitment to price restraint during this period of national emergency.”

“They’re doing very well, thank you,” said Scott Jones, president of AUS Consultants in West Conshohocken, Pa., and a former Arco staff economist. “As long as your price is low, it’s all in the public interest. The question is, what did the strategy emanate from? I’m saying it emanated from a desire to increase market share.”

In lifting its price freeze, Arco acted against a backdrop of growing fears that the Persian Gulf crisis could explode any time. Of immediate concern was today’s Iraqi deadline for foreign embassies in Kuwait to close.

The price of crude oil futures contracts traded on the New York Mercantile Exchange jumped another 71 cents to $31.93 a barrel on Thursday, and traders said there was no ceiling in sight.

Futures contracts for gasoline jumped even more sharply, by more than 4 cents a gallon, to $1.086 for unleaded regular. That could lead eventually to pump prices of $1.55 to $1.65 a gallon when taxes, profits and transportation costs are added.

Traders ignored an announcement from the Vienna headquarters of the Organization of Petroleum Exporting Countries that most members of the cartel have agreed to meet during the weekend to discuss boosting oil production.

Confusing signals from OPEC have fed concerns that the 4.2 million barrels per day lost to world markets because of the embargo on shipping from Iraq and Kuwait might not be made up by other OPEC members. That and fears of war have caused most of the rise in prices.

On top of everything else, an explosion and fire Thursday at a Shell Oil Co. refinery in Deer Park, Tex., raised the threat of still more interruptions in oil deliveries and fueled market jitters. The effect of the refinery explosion on oil supplies was not yet clear, however.

After climbing steadily from about $20 to $29 a barrel in the days after the Aug. 2 invasion of Kuwait by Iraq, the price of West Texas Intermediate, the benchmark U.S. crude oil, surged past the $31 mark Wednesday, even though there is still no shortage of crude in the world.

The fact that crude oil and gasoline inventories are not seriously out of balance prompted the head of the Justice Department’s antitrust division, James Rill, to summon oil companies to explain the leap in gasoline prices.

The department said Thursday that it has interviewed top executives of major oil companies as part of a wide-ranging probe of alleged price gouging, collusion and other anti-competitive acts that would violate antitrust laws. Rill told reporters that all major U.S. oil companies have agreed to cooperate. It is highly unusual for the department to comment publicly on an ongoing investigation.

Oil company officials have argued that the gasoline price increases--a climb of 16 cents a gallon nationally to $1.24 per gallon of self-serve unleaded since the invasion, according to a weekend survey--resulted from the skyrocketing spot prices of crude oil and anticipation of what it will cost to replace the oil that was already in storage when Kuwait was seized.

Compared to other companies, Arco is in a good position to hold the line on gasoline prices because its big Alaskan crude oil reserves make it virtually self-sufficient. Its gasoline refining business buys crude oil from Arco’s oil production arm.

Analyst Jones said the profitability of the refining and marketing business is “almost irrelevant” from a corporate standpoint because the sharply higher sales at the pump mean that Arco’s crude oil business is selling sharply higher volumes of crude--and at today’s higher prices.

Meanwhile, by getting 19% higher sales volumes at prices roughly 13% lower than the competition, Arco appears to be ahead of the game in its retail business as well, Jones said.

Meanwhile, news agencies reported, conservation groups called for higher fuel economy standards in U.S. automobiles as the most effective step the country can take to combat rising oil prices.

A group including the Sierra Club, the Natural Resources Defense Council and the Worldwatch Institute said the Bush Administration must act aggressively to promote energy efficiency.

“Energy efficiency is the cheapest, largest, fastest, fairest and most permanent way to increase energy security,” said Daniel Lashof, a spokesman for the Natural Resources Defense Council.