Gas Could Be Costly for Summer Motorists

Monday, February 7th 2005, 9:55 am
By: News On 6

WASHINGTON (AP) _ Gasoline prices rose more than 7 percent in January, which typically is one of the slowest driving months of the year. That's leading experts to predict pump prices may surge past last year's record highs when highway travel picks up late in the spring.

Government figures show that the average price of regular unleaded has risen in each of the last four weeks, jumping from $1.78 at the start of the year to $1.91 a gallon in the week ended Jan. 31. That's more than 30 cents a gallon higher than a year earlier.

Prices are highest on the West Coast, averaging $1.99 a gallon and lowest in the Rocky Mountain region, averaging $1.83 a gallon.

Last year, the average price peaked above $2 a gallon in May, just before Memorial Day, which is the unofficial start of the summer driving season. To be just a dime short of that level in early February is not good news for motorists, analysts said.

Carl Larry, head of energy futures at Barclays Capital in New York, said he expects retail gasoline prices to rise above last year's peak due to rising demand for fuel and the higher price of crude oil, from which gasoline is refined.

``We're starting to see the economy come back, so demand can only go higher from where it's at,'' Larry said.

Over the past four weeks, nationwide demand for gasoline is up more than 1 percent at 8.8 million barrels, according to the latest U.S. government data.

Larry said gasoline prices would be propelled higher this spring by fears about the nation's growing dependence on imports and the possibility of supply-chain snags as refiners temporarily shut down, or turn around operations in order to shift production from winter-grade fuel to cleaner-burning summer blends.

``All these things fall into place,'' he said.

Another indicator of the strength of the U.S. gasoline market : the nation's largest independent refiner, Valero Energy Corp. of San Antonio, has seen its stock price more than double in the past year. Last week Valero reported that its fourth quarter income nearly quadrupled to $488.5 million.

Crude oil futures are about 40 percent higher than a year ago, hovering just below $47 a barrel, as fears of supply disruptions in Iraq and possible terrorist attacks throughout the Middle East make traders reluctant to bet on lower prices, given strong global demand and an unusually thin supply cushion.

Tom Kloza, director of Oil Price Information Service in Lakewood, N.J., said he anticipates the price of gasoline to ``rocket higher in the next 90 days.'' Nationally, Kloza predicts average gasoline prices could surpass $2.15 and even run as high as $2.50. That said, he expects those highs to be short-lived.

At the start of January, gasoline futures traded at $1.13 per gallon on the New York Mercantile Exchange. By the beginning of February, futures prices had jumped 16 percent.

The Energy Department is scheduled to publish its weekly average gasoline price on Monday. A separate survey released on Sunday by the semimonthly Lundberg Survey of 7,000 gas stations across the country showed an average price of $1.91 nationwide for a gallon of regular unleaded fuel.

BNP Paribas Commodity Futures broker Tom Bentz said there is an ample supply of gasoline at the moment and that gasoline prices could very well fall from current levels. However, ``a lot of refiners are going to start cutting back production as we head into the summer season and so things will eventually heat up a bit,'' Bentz said.

If crude oil futures were to fall back to $40 a barrel, Bentz said he would expect retail gasoline prices to be about $1.75 a gallon at the retail level.

The only wrinkle to that scenario is that the Organization of Petroleum Exporting Countries has signaled its intent to cut output if prices were to fall too low. Many analysts see $40, or slightly below that, as the level at which OPEC would trim production, an action that could very well send prices higher.