Refinery Woes Push Gas Prices Past $3
This spring's storm of U.S. oil refinery mishaps is hitting the nation's motorists as hard as the devastating Gulf Coast hurricanes did in 2005. The federal government's survey showed the nationwide average price of gasoline last week at $3.054, just a hair below the record $3.069 set after Hurricane Katrina. Another closely watched survey, by industry analyst Trilby Lundberg, pegs the current price a couple of cents higher and concludes it has surpassed the Katrina peak.
In any case, the 89-cent run-up in the pump price since the end of January means that consumers are paying 14 percent more for fuel than they did a year ago. The Energy Department's original forecast of a $2.81 average pump price this summer now looks wildly optimistic, and the Energy Information Administration adjusted its prediction Tuesday to $2.95 per gallon. To consumers filling their tanks this week, that may still appear to be an unrealistically rosy scenario, but other analysts are equally hopeful.
"We're optimistic that maybe gas prices will level off, if not retreat," says AAA spokesman Geoff Sundstrom. That's because it's rare for gasoline prices to break the $3 mark when worldwide oil prices are below $75 a barrel, he says. So far this week, crude prices actually dropped slightly, to about $61 per barrel. But that crude oil is getting stuck in a bottleneck caused by a rash of refinery fires and unplanned shutdowns that hit just as the facilities were gearing up to produce cleaner summer gasoline.
As a result, the gas price has crept up while inventories of available gasoline have dropped for 12 consecutive weeks. Analysts will be closely watching the government's new stock figures on Wednesday to see whether the refiners have been able to pump out more supply.
But even if the refining industry recovers, investment adviser James DiGeorgia, editor of the Gold and Energy Advisor newsletter, is among those arguing that the seasonal increase in gasoline demand will kick in and keep prices high. "What happens in the summertime is you get a big spike in demand, not only here but all over the world," he says. DiGeorgia predicts gas prices of $3.50 to $4 this summer.
The big unanswered question is whether the higher prices will persuade consumers to drive less, and ease the pressure on the market. So far, that hasn't happened. U.S. petroleum consumption, in fact, was up 2.6 percent in the first quarter of 2007, even as pump prices ratcheted higher.
So on Capitol Hill this week, politicians eyed other ways to curb U.S. gas demand. The Senate Commerce Committee on Tuesday approved by voice vote a bill that would raise the nationwide automobile fuel economy average from the current 27.5 miles per gallon to 35 miles per gallon by 2020, with 4 percent annual increases to follow thereafter.
Consumers might like to have a wider choice of cars that allow them to save gasoline without curbing the number of miles they drive, but Detroit automakers and their unions still oppose the measure as "extreme." The debate will reach the Senate floor in June, just in time for the full sticker shock to set in for summer vacation drivers.