Pump prices headed higher in time for holiday rush

/ Source: The Associated Press

Retail gasoline prices are poised to test highs for the year just as the holiday season pushes into high gear.

Gasoline production has been affected by a series of issues at refineries that serve different parts of the country, which is sending prices higher on futures contracts. That comes as oil prices are climbing on upbeat news about the global economy.

As a result, pump prices are expected to climb back toward their highs of around $2.90 a gallon and perhaps even higher before retreating in the latter half of December, analysts say.

The national average for a gallon of unleaded regular gasoline rose to $2.879 Thursday, according to AAA, Wright Express and the Oil Price Information Service. That's about 8 cents more than a month ago and a quarter more than a year ago.

The price consumers pay at the pump is closely tied to supply and demand, oil and gasoline futures contracts as well as the global economy.

Demand has fallen in the past month but refinery problems have trimmed some production, which has left tighter supplies in the Northeast, said Tom Kloza, publisher and chief oil analyst at Oil Price Information Service. Supplies remain plentiful in other parts of the country.

Meanwhile, oil prices have surged for much of the week amid more positive economic news. Reports this week showed an improvement in U.S. manufacturing activity, retail sales and the housing market. The Labor Department said more Americans applied for unemployment benefits last week but the average over the past month fell to a two-year low.

Traders also have been more optimistic that Europe may be taking steps to ease its debt crisis. European Central Bank President Jean-Claude Trichet said the bank would prolong measures to provide ready cash to banks and steady the financial system.

Benchmark oil for January delivery added 41 cents to $87.16 a barrel on the New York Mercantile Exchange, just shy of the 2010 high of just above $88 a barrel reached on Nov. 10.

The combination of issues has sent gasoline for January delivery up 3.23 cents to $2.3327 per gallon. The price has risen about 19 percent since Labor Day, the unofficial end of the heavy summer driving season.

Michael Lynch, president of Strategic Energy & Economic Research, said the national average for retail gasoline likely will test $3 a gallon sometime next week. The price already is above that along the West Coast and in parts of the Northeast.

Kloza believes the national average will fall short of $3 a gallon this year but will approach it next spring in anticipation of the summer driving season.

In other Nymex trading in January contracts, heating oil gained 2.61 cents to $2.4317 a gallon. Natural gas lost 5.9 cents to $4.210 per 1,000 cubic feet after the Energy Department said natural gas inventories held in underground storage in the lower 48 states declined by 23 billion cubic feet to 3.814 trillion cubic feet for the week that ended Nov. 26.

In London, Brent crude rose 89 cents to $89.66 a barrel on the ICE futures exchange.