Saturday, March 6, 2004

Analysts fear spike in gas prices

Summer could bring $2.30 a gallon

By Mike Boyer
The Cincinnati Enquirer

J.R. Walker of Kettering, Ohio paid $1.99 per gallon for premium gasoline Friday when he stopped at the Shell station in Covington, Ky. Some analysts warn that summer gas prices may climb as high as $2.30 a gallon for regular unleaded.
The Cincinnati Enquirer/ERNEST COLEMAN

COVINGTON - J.R. Walker of Kettering, Ohio, pumped premium gasoline costing $1.99 a gallon into his 1984 Corvette Friday afternoon, but he wasn't happy about it.

"I'm in shock," he said as he headed down Interstate 75 on his way to Virginia. "I paid $1.99 in Kettering, too, but it normally costs me $1.69 or $1.79 for premium."

"I guess I'll have to look into an electric-powered car. It can't go on like this," said Walker, who operates a tractor-trailer repair shop in Dayton, Ohio. Some analysts say the Midwest could see unleaded gas as high as $2.30 a gallon for regular this summer. While there is some disagreement among industry watchers about where prices will peak, even a moderate bump up would break the all-time Cincinnati average high of $1.89 a gallon, set in summer 2000.

With the average price of unleaded regular nationally creeping toward the record of $1.74 a gallon set last August, government officials this week cautioned that the cost of gasoline is headed even higher with the peak summer driving season still weeks away.

Energy Secretary Spencer Abraham said the Bush administration was "extremely concerned" about the spike in gas prices.

On Friday, the average price of unleaded regular in Covington was $1.72 a gallon, up from $1.70 a gallon the day before and $1.67 a gallon a year ago, according to the AAA Daily Fuel Gauge Report.

Across the Ohio River in Cincinnati, the average unleaded price was $1.68 a gallon, up from $1.66 a gallon the day before and $1.66 a gallon a year ago, according to the AAA price survey. (Northern Kentucky is mandated to supply "reformulated" gas to reduce emissions. RFG, as it is called, is usually a few cents higher than plain.)

Guy Caruso, head of the U.S. Energy Information Agency, told the Senate Energy Committee this week that its short-term price forecast will be raised when it is posted on Tuesday . Current prices nationally are $1.72 a gallon.

But Caruso declined to comment on predictions that the national average could top $2 a gallon because of a combination of tight supplies and higher demand.

Others aren't so reticent.

"This summer has the worldwide potential to be really, really ugly," said Phil Verleger, a visiting fellow at the Institute of International Economics in Washington, D.C.

"China's growing and Asia is growing,'' he said. "The U.S. used to be able to get all the gasoline it needs, but now the rest of the world is bidding up the price."

Verleger, who's already paying more than $2 a gallon for gasoline in his hometown of Newport, Calif., said the Midwest could see regular unleaded in the $2.25-$2.30 a gallon range this summer.

Tom Kloza, analyst with Oil Price Information Service, which compiles the AAA data, said motorists might see some short-term relief as prices slip in the coming weeks before heading higher. He expects a peak in late July or early August. "East of the Rockies, we could revisit and exceed the prices we're seeing now,'' he said.

Kloza said gasoline prices have been rising because demand is up and refineries are making a seasonal switch from winter to summer fuels, which causes bottlenecks and tight supplies.

Other factors raising prices:

• Increasing demand due to an improving economy and warmer weather. Gasoline demand typically increases to about 9.5 million gallons daily by late summer from less than 9 million gallons in winter. Kloza said demand is about 3 percent higher than a year ago.

• Supplies are smaller. OPEC, which pumps about a third of the world's oil, plans to cut production April 1. Venezuela, a major source of U.S. oil, is dealing with political unrest that is causing supply interruptions.

Verlager said the United States is consuming so much gasoline that even minor refinery outages for repairs or accidents can lead to major supply disruptions. That could lead to spot gasoline shortages this summer, he said.

Motorists who were pumping unleaded regular at $1.80 a gallon at the BP, Speedway or Shell stations between Third and Fourth streets in Covington Friday said they felt helpless about the higher prices.

"There's not much I can do," said Dan Shute of Covington as he finished filling up his 1997 Toyota pickup. He said he needed the gas because he was heading to Lexington where he works on the weekend as a free-lance graphic artist.

"I'm kind of a resigned to the situation," said Michael Nichols of Covington as he pumped gas into his Mazda Tribute, "although I wish I had a smaller car than this SUV."


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