Taking Lumps at the Pump
Price rises are now a rite of spring; $3 in summer?
Alongside crocuses and baseball, there's a new harbinger of spring: the gasoline price run-up. After 11 consecutive weeks of price increases, the government last week said U.S. motorists were paying $2.88 a gallon, up 27 cents in just three weeks and 33 percent since late January. Americans are no longer waiting until summer to hit the road, the Energy Information Administration says, with March and April demand now strong.
"For years, the typical summer driving season was considered to occur between the Memorial Day and Labor Day holidays," the agency said in a recent analysis. "While this characterization still holds, in recent years demand patterns have shifted somewhat to include more robust levels of gasoline demand earlier in the season with a presummer peak in gasoline prices."
But this is a spring price peak with a vengeance. Even with the new average price nearly 10 cents a gallon higher than a year ago, weekly U.S. motor fuel demand reached a new record high for April. Meanwhile, supplies were even tighter than they would have been with the usual slowdown in gasoline production as refiners switch to making fuels that meet special environmental requirements for summer.
Two major refinery fires, one at BP's giant Whiting, Ind., facility and the other at Valero's McKee plant in Sunray, Texas, will result in lost gasoline production for weeks.
Price spikes. In California, where special clean fuels are required by law, production of gasoline dropped 7 percent in one week, with a fire at a Chevron facility in Richmond and an unplanned outage at the BP refinery in Carson. The average price for regular grade in California was $3.31 per gallon, 41 cents a gallon above last year's price.
It's hotly debated whether gas prices in the rest of the country will pass the $3 mark. Energy Department forecasters believe the market will calm, and they project a $2.81 average pump price this summer, 3 cents lower than last year. The American Automobile Association agrees, reasoning that the market has breached $3 only after unusual disruptions, like the Gulf Coast hurricanes of 2005 and the Israel-Lebanon conflict last summer, says spokesman Geoff Sundstrom.
But other analysts look at the pressure on the market-underscored by nine consecutive weeks of drawdown in the nation's gasoline inventories-and expect the pain at the pump to get much worse. "We need to see an incredible gas production turnaround to catch up with insatiable demand," says Phil Flynn of Alaron Trading in Chicago.
David Pursell, an analyst at Pickering Energy Partners in Houston, predicts $3 or more gas at the pump this summer. "People will complain about it," he told Reuters, "but will probably keep driving." In fact, they'll drive out of their way to look for better gas prices, research shows. But since current prices mean the average driver is burning 10 cents a mile, better make sure it's worth the trip.
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This story appears in the April 30, 2007 print edition of U.S. News & World Report.