Gas price nudges record, still rising

$1.83 regular predicted

market analysts point to high demand, low supply

March 10, 2004|By Jamie Smith Hopkins and Tracy Swartz | Jamie Smith Hopkins and Tracy Swartz,SUN STAFF

Low supply, high demand, market speculation and new environmental regulations combined to make Americans pay an average of just under $1.74 a gallon this week for regular unleaded gasoline.

That's less than a penny under the record set last August when a major power outage disrupted refineries, and more increases are expected in coming weeks.

At about $1.69 a gallon yesterday, Maryland was a little more than a cent below its highest price, AAA Mid-Atlantic reported. Cumberland set a new record Saturday as drivers shelled out $1.73 a gallon to fuel up.

FOR THE RECORD - An article in yesterday's editions about gasoline prices misidentified an additive that has been banned for environmental reasons in some states. The additive is MTBE.

"We're still going to go higher," predicted Phil Flynn, vice president and senior market analyst with Alaron Trading in Chicago, which deals mainly with energy commodities. "Even with record-high prices, gasoline demand has also been at a record high."

The Energy Information Administration released a short-term energy outlook yesterday that forecast a "high likelihood of additional gasoline price increases this spring," possibly peaking at about $1.83 a gallon.

It expects an average price of $1.74 a gallon from April to September - a record-setter, though costs were higher in 1985 if inflation is taken into account.

"I just think it's really ridiculous," said Columbia resident Candy Chapman, 30, as she pumped gas at a Mobil station in Baltimore yesterday for $1.69 a gallon.

It used to cost her $15 to fill up her Saturn Ion. Now she pays $20.

Tom Kloza, chief oil analyst for the Oil Price Information Service, is convinced the spring spike is just about over, but he anticipates trouble in the summer.

That would mean more pain for commuters, businesses and retailers of gas, who are quick to point out that they're not benefiting.

"Retailers dislike price increases just as much as consumers," said Jeff Lenard, spokesman for the National Association of Convenience Stores. "Margins shrink. ... They could probably make more money off a 12-ounce cup of coffee than a 12-gallon fill-up."

"Drive-offs" - people stealing gas by taking off without paying - also increase whenever the price does, he said.

"It's all based on misdirected consumer anger and frustration," Lenard said.

Other angry consumers have been sending e-mail chain letters urging people to boycott BP, Amoco and Exxon to pressure them to drop prices "under $1 a gallon."

But energy experts say it's largely out of the gas companies' hands.

The Organization of Petroleum Exporting Countries (OPEC) has promised to cut crude oil production by 2.5 million barrels a day - about 10 percent - by April 1.

Venezuela, the fourth-largest exporter of crude oil to the United States, has also indicated it might cut back.

"If it does happen, we're kind of up crude creek without a paddle," Flynn said.

Crude oil is already $8 more a barrel than it was last year, according to the Energy Information Administration, and there's not a lot of it ready for refining in the United States.

"Inventories are at some of their lowest levels in over 30 years," said Jacob Bournazian, an economist for the energy administration.

Still, Kloza attributed a large part of the recent price run-ups to record amounts of speculation on the futures market, driven by "petro-noia."

"There's nothing that pumps up a market like worry," he said.

He said wholesale prices on the West Coast have started to drop, but he expects supply and costs will be a problem this summer.

"It could be prices that are substantially higher than you've ever paid before for a couple weeks or so," Kloza warned.

New environmental regulations that went into effect in January are adding to the tight situation, refiners said.

Requirements for decreasing sulfur in gas also decrease the amount of refined gas produced from crude oil, according to the National Petrochemical & Refiners Association.

At the same time, the association said, New York, California and Connecticut banned an additive called NTBE that's a danger to ground water but is another source of end volume.

"Policymakers need to explain to the American people that this is an unfortunate trade-off for the progress that everyone wants to make in the environmental area," said Bob Slaughter, president of the refiners association.

Drivers have a message of their own about the prices:

"I hate it," said Dennis Jester, 49, a Pasadena resident filling up in Baltimore yesterday. "Absolutely hate it."

He travels around the state on his job as a service technician. Gasoline costs are making him cut back on maintenance on his truck to stay on budget.

Boyd Horn, 48, a driving school instructor, is equally stuck.

"I'm either going to deal with fuel costs," he said, "or not work."

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