Fuel prices jump again with no end in sight, analysts say

Feb. 22, 2012

Fuel prices continued to climb across the U.S. this week, surpassing $4/gal. in some areas to over $5 in California as industry analysts predict that prices will rise further this summer.

Diesel prices reached $3.96/gal. this week on average, ranging from $3.84 in the Midwest to $4.25 in California. Prices are up 38 cents from a year ago, according to the Energy Information Administration.

The average price of regular gasoline rose Tuesday to $3.570/gal., marking an increase of 1.6% from the week-ago average price of $3.51 and a whopping 12.6% rise from the year-ago average price of $3.17, according to the Automobile Association of America’s (AAA) Daily Fuel Gauge Report cited in a Washington DC Fox News report.

The average price of gasoline is up more than 25 cents from the beginning of the year, the survey showed, as gasoline prices have followed the recent dramatic rise in oil prices amid continued turmoil in the Middle East.

In Los Angeles, the price of regular unleaded already is $4.93/gal. and premium is $5.09 at some gas stations, and the escalating fuel costs are expected to ripple throughout the economy, affecting everything from groceries to air fares, according to the Kansas City Star.

“We’re always over-sensitive to the price of gasoline,” said Chris Kuehl, a Kansas City-based economist and business forecaster told the Star. “It just provokes consumers into total depression if the price goes up. … It’s just psychological.”

Industry analysts believe that prices will continue to grow as long as oil prices keep spiking.

“There is more grim news ahead as a perfect storm of global factors, including rising crude oil prices, closing refineries and pressure on supply, mean that by Easter we could well see diesel and [gasoline] prices go even higher,” Brian Madderson, chairman of RMI Petrol, a gas-station trade group, told The Wall Street Journal.

The price of oil has risen with the price of oil futures, which traded at a nine-month high Tuesday, pushing toward $105 a barrel on fears of more supply disruptions out of Iran.

The fuel-price increases follow a typical annual pattern, though it is happening earlier than in previous years. The Associated Press reported that gasoline prices had never been higher this time of the year.

“I think this is very similar to past years, though the price increase has started earlier and is complicated by refinery shutdowns on the East Coast,” according to Tom Kloza, publisher and chief oil analyst for the Oil Price Information Service.

The Energy Information Administration predicted in December that closing the refineries could increase price volatility as markets adjust to new supply routes. Most of the fuel now used in the Northeast is delivered from the Gulf Coast by pipeline or by ship from overseas refineries.

As fuel consumption declines in the United States from its 2007 peak because of increased efficiency and the economic downturn, refineries in the Caribbean and Europe are shutting down in response to “demand destruction,” according to a report in the Philadelphia Enquirer.

A contributing factor may be the idled state of the Sunoco refinery in Marcus Hook, PA, according to the Enquirer. Sunoco shut down the plant in December, not long after the nearby ConocoPhillips in Trainer, PA, was idled. Together, the two refineries produced about 20% of the fuel used in the Northeast.

“As soon as these two refineries shut down, prices started rising,” said Denis Stephano, president of United Steelworkers Union Local 10-234, which represents workers at the idled ConocoPhillips refinery. “When you shut refineries down, you take refined product out of the market.”

Price volatility could get worse in June if Sunoco is unable to find a buyer for its Philadelphia refinery, the Enquirer reports. That refinery processes 335,000 barrels a day, nearly as much as the two refineries in Marcus Hook and Trainer. Sunoco will reportedly shut the Philadelphia plant if it can’t find a buyer.

On the West Coast, refined oil products prices jumped on Tuesday due to BP’s idled 225,000 barrel-per-day Cherry Point, WA, refinery, the third-largest on the West Coast, according to Reuters. A BP spokesman confirmed that the refinery remained idle on Tuesday as the company examined the crude unit for damage from a fire last week and weighs options for returning it to production.

For fuel price information view the U.S. Energy Information Administration: Gasoline and Diesel Fuel Update at http://www.eia.gov/petroleum/gasdiesel/

About the Author

Deborah Whistler

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