IE 11 is not supported. For an optimal experience visit our site on another browser.

Gas prices may be at short-term peak

U.S. retail gasoline prices may have peaked for the short term after soaring in the last week to $2.50 a gallon for first time since October, the government's top energy forecasting agency said Wednesday.
/ Source: Reuters

U.S. retail gasoline prices may have peaked for the short term after soaring in the last week to $2.50 a gallon for first time since October, the government's top energy forecasting agency said Wednesday.

The average price drivers pay for a gallon of regular unleaded gasoline jumped almost 14 cents a gallon, the third biggest weekly increase ever at the pump and up 40 cents from a year ago.

However, wholesale gasoline prices are now flattening and that implies retail costs could be near their short-term peak, the Energy Information Administration said.

"At least for the next couple of weeks, a sharp increase in retail prices, like the one seen last week, does not appear to be on the immediate horizon," the Energy Department's analytical arm said in its weekly review of the oil market.

The agency said the increase in gasoline prices is due to the seasonal spring rise in motor fuel demand as the weather turns warmer and people drive more.

"As with more commodities, the more people use it, the more valuable it becomes," the EIA said.

Also helping to push up pump prices this year is uncertainty over supplies later this summer as oil refineries phase out using the water-polluting fuel additive MTBE to corn-based ethanol when making gasoline.

Many oil companies are worried they could be sued if they keeping using MTBE (methyl tertiary butyl ether), which has already been banned in many states.

The problem is U.S. ethanol producers will not be able to make enough of their product, which is difficult to transport, to meet refiners' demands for most of this year and more imports will be needed to close the gap, according to the EIA.

"The rapid switch from MTBE to ethanol could have several impacts on the market that serve to increase the potential for supply dislocations and subsequent price (jumps) on a local basis," the agency said.

U.S. Energy Secretary Sam Bodman told reporters on Wednesday that he thought ethanol supplies would be adequate, but admitted there could be supply disruptions and higher pump prices during the transition from MTBE to ethanol.

"You're going to see some price gyrations in ethanol markets as MTBE phases out," he said.

Because of possible supply problems and price spikes, wholesalers may be buying more gasoline to hold than they normally would do at this time of year, the EIA said.

"In other words, if a wholesaler thinks prices will be higher in the future, it makes sense for him to buy more now and store it for use later, when prices will presumably be higher," the agency said.

U.S. gasoline futures at the New York Mercantile Exchange that reflect delivering motor fuel in April fell 10.3 cents, or 5.6 percent, to about $1.74 a gallon in trading Wednesday.