Gasoline prices expected to peak next month
| • | State average is up again |
By Ken Moritsugu
Knight Ridder Newspapers
WASHINGTON — Gasoline prices are likely to remain at today's elevated levels throughout the summer, the federal government said yesterday as traders pushed the price of oil above $40 a barrel for the first time since the 1990 Gulf War.
Associated Press
The Energy Department predicted that the national average for regular gasoline would peak at more than $2 a gallon by June and remain above $1.90 through September. Prices are higher on the West Coast, where the average for regular has shot up to $2.20 a gallon.
The sign at a service station in Santa Barbara, Calif., keeps up with rising prices — $3.13 a gallon for full service, up from $3.11.
Not only will prices remain high, but they could surge even higher in certain markets, particularly if a refinery goes down, a pipeline breaks or some other local disruption to supply occurs.
America has limited production capacity, and an unanticipated surge in gasoline demand this year may present U.S. refiners with their greatest test ever.
The high prices pose a risk to economic recovery. They take a bite out of consumer income, reducing spending power while contributing to inflation. The prices also hit lower-income drivers particularly hard.
If high prices persist, they could become a presidential campaign issue, as in 2000. Gasoline prices usually fall after Labor Day, but the Energy Department projections suggest that the U.S. average for regular will top $1.70 on Election Day.
The continued rise in oil and gasoline prices has surprised many energy market analysts.
Just a month ago, the Energy Department predicted that the price for regular would average $1.76 nationwide this summer. But according to more recent projections by the department's Energy Information Administration, the average would be $1.94.
That's more than twice what drivers were paying a little more than five years ago, when the national average slipped under $1 a gallon in late 1998 and early 1999. But adjusted for inflation, it's less than the peak prices of the early 1980s, when they reached about $3 a gallon in today's dollars.
Some analysts think that today's prices don't reflect market conditions but have been bid up by traders on fears ranging from a terrorist attack on Mideast oil facilities to a shortage of gasoline in the United States.
"I think this market has lost its compass," said Tom Kloza, an analyst at Oil Price Information Service in Lakewood, N.J. "The compass seems to be malfunctioning in just one direction, magnetic north or higher."
One concrete factor is soaring global demand for crude oil, from China's economic boom to the overall economic recovery in Asia, the United States and, to a lesser extent, Europe. Higher oil prices account for about half the rise in gasoline prices, analysts say.
In the United States, energy experts were surprised by soaring gasoline consumption. Over the last few months, gasoline demand has been up at least 3 percent from last year, far exceeding typical demand growth of 1.5 percent a year.
Recently, officials at the Organization of Petroleum Exporting Countries, the cartel that produces about 40 percent of the world's oil, have tried to talk down the price of oil.
Saudi Oil Minister Ali Naimi said this week that OPEC should increase its production quota by 1.5 million barrels a day. OPEC tries to limit its production to keep oil prices at a certain level. If prices fall, the producers lose revenue. But if they rise too high, it could curtail demand for oil, which OPEC doesn't want.
Naimi's comments had only a temporary effect on oil prices, which rebounded yesterday after falling Monday. The futures price for oil to be delivered next month closed at $40.06 a barrel on the New York Mercantile Exchange, up $1.13. It's the highest close since oil finished at $40.42 in October 1990.
State average is up again
Hawai'i's statewide average hit yet another record yesterday at $2.196 a gallon for regular, up by more than 14 cents from a year ago, according to the AAA travel club.
Honolulu's average price for regular also hit a record at $2.110 a gallon. That's 13.6 cents above the year-ago average.
In Wailuku, Maui, drivers paid an average of $2.419 a gallon, down from the town's record of $2.439 reached last week.
Hilo's average stood at $2.237 a gallon, up from $2.121 a year ago.
— Advertiser staff
