Prices At Pump Rise As Oil Prices Continue To Surge
Justin Sullivan  /  Getty Images
Gas prices continue to rise with oil prices. The average price for a gallon of regular unleaded in the San Francisco Bay Area is about $2.60 with many stations selling at over $3.
By John W. Schoen Senior producer
msnbc.com
updated 8/18/2005 3:56:03 PM ET 2005-08-18T19:56:03

With just a few weeks left in the summer driving season, consumers are wondering just what it will take to put the brake on gas prices. For the last ten days in a row, pump prices set new records. And with inventories of gas at a new five-year low, refiners are having trouble keeping up with demand.

Some drivers report they're beginning to look for other ways to get around. Michael Right, spokesman for the AAA in St. Louis, said a recent survey found that more than a third of its members have started looking for ways to cut back, including carpooling, bicycling or walking to work.

"We got comments back that said people were already taking some kind of action before we were even looking at $2.00 a gallon," Right said.

But those reported changes in driving habits haven’t cut overall demand. Americans have been burning through gasoline at a rate of 9.5 million barrels a day over the past month, up from 9.4 million this time last year, according to the Energy Information Administration.

“We’ve been setting new record high gas prices since 2000, and consumption has continued to increase,” said AAA spokesman Geoff Sundstrom

Meanwhile, refiners have been coping with a series of unexpected outages, which has cut gasoline output. Last week, U.S. refineries operated at 93.5 percent of capacity, down from 95 percent the week before, according to Jacques Rousseau, an industry analyst at Friedman, Billings Ramsey in Houston.

With demand rising and supplies tight, prices continue to push higher. Pump prices soared to a record $2.586 per gallon nationwide Thursday, according to the AAA fuel gauge report, and some areas already are seeing prices at or above $3 a gallon. 

"It's disgusting," said Kui Gonsalves, who paid $3.03 per gallon to fill his Toyota on Tuesday morning in Makawao, Hawaii.

But Hawaiian motorists, who pay the highest prices in the U.S., may get some relief as the state becomes the first in the nation to put a price cap on gasoline. The new law, which takes effect Sept. 1, allows the state Public Utilities Commission to set a maximum wholesale price for gasoline in Hawaii, based on the weekly average of spot prices in Los Angeles, New York and the U.S. Gulf Coast. The law would not put a cap on retail prices.

Relief in sight?
Analysts say they expect gasoline demand to begin its normal seasonal decline after Labor Day, when the summer driving season winds down.

“I think that barring some unforeseen geo-political catastrophe affecting oil supplies, then the stage ought to be set for prices to come down once we get to the fall winter period,” said Sundstrom.

Record pump prices don’t seem to be having much impact on new car buyers

In Southfield, Mich., Dave Pongratz picked up a new Hummer H3 on Wednesday as a surprise gift to his wife, Sandy, an avid camper and kayaker who wants a safe vehicle with good towing capacity. Pongratz said he'd rather go to fewer restaurants than buy a vehicle with higher fuel economy that the H3, which gets about 16 miles per gallon in the city.

"Everybody decides, 'What do I want to trade for what I want to do?'" said Pongratz, a plant foreman for General Motors Corp., which makes the Hummer.

Kevin McCormick, a spokesman for DaimlerChrysler AG's Chrysler Group, said the company isn't seeing a sales slowdown in any segment, including its popular pickup trucks. Toyota Motor Corp. also said gas prices don't seem to be affecting sales.

Though American drivers are feeling pinched, consumers in some parts of the world would consider U.S. gasoline cheap. Thanks to heavy taxes, European drivers pay much more. In Norway, prices recently toped $7 a gallon. Taxes can make up more than two-thirds of the pump price in some European countries.

But drivers in some Asian and Middle Eastern countries get off easier at the pump -- thanks to heavy government subsidies that keep gasoline below world market prices. In Iraq, where you’ll find the world's cheapest gasoline, you can top off for as little as 5 cents a gallon, according to a recent report by the International Monetary Fund. Last year, the Iraqi government spent some $3 billion on gasoline subsidies, an expenditure the IMF says threatens the country’s fragile Iraqi economy. 

Other countries that subsidize gasoline have gradually begun lifting prices. China raised prices by 4.5 percent in June to $1.63 a gallon. India also raised retail gasoline and diesel prices in June, the first increase since last November.

In the U.S., higher gasoline prices have begun to weigh on the economy. On Thursday, a widely-watched gauge of future economic activity rose a just 0.1 percent in July, a sign that higher oil prices are beginning to hurt the economy's growth prospects. On Wednesday, the government reported that wholesale inflation in July took its biggest leap in nine months in July, due in part to the hit consumers are taking at the pumps.

Shoppers hit with high gas prices are apparently beginning to cut back elsewhere in their family budgets. Earlier this week, Wal-Mart its second-quarter revenues fell short of forecasts and the retail giant put part of the blame on higher gasoline prices cutting into its customers spending power. Wal-Mart also warned that earnings for the third quarter would be below analysts’ forecasts.

“I worry about the effect of higher oil prices,” said Wal-Mart chief executive Lee Scott.

Winter chill?
And while gasoline prices may ease up a bit when summer demand cools, many homeowners face sharply higher home heating bills this winter. Natural gas prices have nearly doubled -- wholesale prices jumped to $9.73 per million btus this week, up from $5.13 this time a year ago while heating oil prices jumped nearly 19 cents to $1.88 a gallon, up 69 cents from a year ago.

That big jump is making it tough for heating oil dealers to lock in winter contracts with their customers. Most dealers begin offering a fixed price through the winter, but the recent run-up has made it difficult to predict where prices will be  six months from now. Customers who lock in now risk seeing prices pullback, and paying more than they should.

"It's a horrible year. It's ridiculous," said Ron Trinks, who with his wife, Dee, runs Trinks Brothers Oil in South Windsor, Conn.

A lot depends on how cold the weather is this winter. Heating oil inventories are in pretty good shape for this time of year, according to Energy Department figures. But a prolonged cold snap could stretch supplies, touching off further price rises this winter.

(The Associated Press contributed to this report.)

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