Pump prices
Robyn Beck  /  AFP-GETTY Images file
A Winnebago drives past a gas station on Highway 10 in Palm Springs, Calif. A recent upturn in gas prices hasn't slowed demand.
By John W. Schoen Senior producer
msnbc.com
updated 7/1/2005 1:10:50 PM ET 2005-07-01T17:10:50

When government and industry analysts set up their forecasts for summer gasoline prices earlier this year, they predicted the seasonal surge would subside by this weekend — the mid-point of the summer driving season when demand for gasoline peaks. But the latest upturn in pump prices is one more sign that the recent run-up in energy prices is not seasonal, and that prices may be headed even higher from here.

Pump prices peaked in April at an average of $2.28 a gallon for regular and then began easing, falling to $2.05 a gallon by the Memorial Day weekend, according to the Energy Information Administration. Since then prices have climbed back to $2.22 a gallon, according the EIA.

When gas prices peaked in mid-April and supplies began to build, a number of forecasters expected prices to gradually ease through the rest of the summer. Gas prices began falling as the price of crude fell to $47 by mid-May. But since then a spike in crude prices above $60 a barrel has sent gasoline prices surging along with them. The price of crude contributes to about half the cost of a gallon of gasoline.

Despite the price rise, demand for gasoline remains strong. Last week, American motorists burned through 9.4 million barrels (or about 395 million gallons) of gasoline — up 2.5 percent from the same week a year ago.

Crude oil prices have backed off a few dollars from record highs, but are still sharply higher than they were a year ago, when oil traded in the mid-$30s. Despite recent assurances by OPEC ministers that the markets are adequately supplied with crude, prices have remained high.

And though the Senate recently approved a comprehensive energy bill, it won’t offer relief from high pump prices any time soon. The White House has said it is powerless to rein in prices or curb further increases.

“Unfortunately, there is very little that can be done in the short run to dramatically affect the price of oil,” said Treasury Secretary John Snow earlier this week.

Though higher pump prices are stretching consumers’ budgets, the added burden hasn’t been enough to cut into summer vacation plans, according to Justin McNaull, a spokesman for AAA in Washington, D.C. With pump prices about 70 cents higher than they were two years ago, the cost of the average 500-mile trip in a car that gets 25 miles to the gallon is up about $14, he said.

“For the cost of one large pizza most people aren’t going to squash their summer vacation plans,” said McNaull.

Popular travel destinations and tourist resorts have been offering free fill-ups to keep vacationers from canceling trips.

Barring a continued run-up in crude prices, analysts expect pump prices to stabilize for a while near current levels.

“Most of that damage has probably already been done,” said Tom Kloza, an analyst at the Oil Price Information Service. “The next cross-your-finger period will be August to November.”

That’s because, with supplies stretched so tight, a variety of factors could bring a late-summer spike in pump prices. A severe August heat wave and a surge in demand for electricity could bring power outages that force refiners to shut down. Refineries have been running flat out without maintenance, which increases the likelihood of a breakdown.

“This year we’ve been pretty lucky about refinery problems,”saidNeil Gamson, an analyst with the Department of Energy.

Refiners will also have to begin switching over to making heating oil later this summer to build stockpiles for the winter. The price of diesel fuel, which is similar to heating oil, has surged this summer in part due to trader's concerns that both fuels may be in short supply this winter. Diesel sold for an average of $2.34 a gallon this week, up 64 cents from a year ago. The sooner refiners begin building up those winter stocks of heating oil, the less capacity there will be to continue making gasoline.

Storm clouds
And, as consumers learned last year, the current hurricane season presents the threat of short-term supply interruptions. Even the threat of a hurricane making landfall on the Texas/Louisiana coast can force the shutdown of refineries and shipping facilities that account for roughly half the crude oil imported into the U.S. Much of the roughly 1 million barrels a day of imported gasoline comes from refineries in South America and the Caribbean, traveling along shipping lanes that run through the highest concentrations of tropical storms.

Though the higher cost of gasoline has not yet cut demand, pump prices are beginning to pinch, especially for businesses like delivery companies and cab drivers that rely heavily on transportation fuels.

Washington, D.C. cab driver Akram Mohammen said he now pays $35 for a tank of gas, up from $15 a few months ago.

“We have to work every day,” he said. “We cannot stop just because the gas prices go up, so it gets paid out of pocket.”

Gasoline retailers, who typically earn just pennies per gallon on gasoline sales, have also been getting squeezed. In areas of heavy competition, gas stations have been trying to hold the line on price increases to keep customers coming back. But in states with minimum markup laws, gasoline retailers face heavy fines for cutting prices too far. State officials in Minnesota, where the law requires a minimum markup of 8 cents a gallon, recently charged a gasoline retailer with 160 violations of the law which carry a potential fine of $1.6 million.

Fuel filching rises
And with few transportation alternatives available to cash-strapped motorists, gasoline retailers are also reporting more cases of stealing. Gas station “drive offs” amounted to $237 million last year, up from $112 million in 2003, according to the National Association of Convenience Stores.

“This is the worst year I’ve seen,” said Linda Fulton, who has managed a filling station in Wake Village, Texas for the past nine years. “I’m $111 short this week, and it’s all from drive-offs. Normally, I wouldn’t lose this much in a month.”

The Associated Press contributed to this report.

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