Further surge in gas prices expected

John W. Schoen Senior producer • Profile • E-mail

WASHINGTON - With the summer driving season still more than a month away, gasoline prices have already started their seasonal climb — jumping 15 percent in the past six weeks alone. And that’s just the price you’re paying at the pump. With wholesale prices rising even faster, it’s a safe bet that the surge in pump prices isn’t over, analysts say.

In fact, pump prices are rising along with the temperature, and motorists should expect little relief during this summer’s heavy driving period according to a government report released Tuesday.

The official short-term energy outlook from the U.S. Energy Information Administration (EIA) projects the price for regular grade gasoline this summer will average $2.62 a gallon, 25 cents higher than last summer, barring any unexpected supply disruptions. Gasoline prices have soared since February.

Last week, motorists paid on average $2.68 a gallon nationwide for regular, an 18-cent increase in two weeks and 40 cents higher than the national average a year ago.

Growing demand, high crude oil costs, requirements for low-sulfur gasoline and greater demand for corn-based ethanol as an additive all “are expected to keep consumer prices for motor fuels ... high in 2006,” said the report.

The high prices are not expected to dampen demand during the April-September heavy driving season. Motorists are expected to use an average 9.4 million barrels of gasoline a day, or 1.5 percent more than last summer, according to the EIA.

“All of these factors are providing a supply challenge to the industry and our ability to meet demand this summer,” said EIA Administrator Guy Caruso at a news conference releasing the forecast Tuesday. “We have very low spare productive capacity.”

Caruso also estimates that about 19 cents of the 25 cent increase in pump prices will come from higher crude oil costs.

The seasonal rise in gas prices — from the lows in the dead of winter to the highs in spring and early summer — has averaged about 55 percent each year for the past 20 years, according to Tom Kloza, who tracks pump prices at the Oil Price Information Service. And while pump prices are up roughly 50 cents a gallon since early December, wholesale prices are up more like 75 cents, he said.

NBC VIDEO The impact of rising gas prices April 11: NBC’s Kevin Tibbles looks at what the rising cost of gasoline will means to farmers, the stock market and you. Nightly News

“When you have 75 cents of wholesale increases and only about 50 cents of retail you’ve got about 25 cents of catching up to do,” said Kloza.

One reason pump prices haven’t kept up is that the rapid rise in wholesale prices has made it harder than usual for retailers to pass along the increase to their customers.

“The retailers are under water,” said Kloza. “If you’re a chain — whether you’re Costco or the local chain — right now there’s a very good chance that you’re losing money on the gasoline that’s going out of your station because you’re replacing it at a price that costs more.”

As forecasters try to nail down what will happen in the coming months, a lot will depend on what happens in the next several weeks, as U.S. refiners wrestle with a series of production headaches that could put a crimp in supplies.

April usually brings a switch from conventional gasoline sold only in winter months to the so-called reformulated gas mandated in many parts of the country to cut air pollution. That usually means refiners, distributors and wholesalers draw down stocks of winter fuel — which can’t legally be sold in summer — flushing the old fuel out of the system before moving the new summer blends.

This year, they’ve got an added headache. In the past, reformulated gasoline relied on an additive known as MTBE which, after it was found to pollute groundwater, is now being phased out as this year’s summer gasoline moves through the system. With supplies already tight, the loss of that additive cuts overall gasoline supplies by about 400,000 barrels a day — or the equivalent of four to five large refineries, according to the National Petrochemical and Refiners Association.

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