Eight reasons pump prices may move higher

4. Ethanol: The net benefits of ethanol — a motor fuel made from corn — remain controversial. But the recent move to rely on ethanol to make gasoline burn cleaner in the summer threw a major crimp in this year’s switch to summer blends. For starters, the entire supply chain — from refineries to pipelines to storage tanks — had to be flushed out to eliminate the old additive MTBE, which was phased out after it was found to be contaminating water supplies.

The surge in demand for ethanol has stretched the rapidly expanding ethanol production and distribution system in the U.S. — and pushed prices sharply higher. Ethanol prices topped $3.50 a gallon last week, more than double a year ago; spot prices in some areas hit $5 a gallon. Since summer gasoline typically includes about 10 percent ethanol, those higher ethanol prices are being passed along to consumers at the pump.

Last week, U.S. Energy Secretary Sam Bodman said he was concerned about the jump in ethanol prices, but he said lifting the U.S. tariffs on Brazilian ethanol imports won't increase supplies enough to make a difference.

5. Lower imports: Even at full capacity, U.S. refineries alone can’t meet American drivers’ demand at the pump. Last year, imported gasoline made up about 7 percent of  the gasoline supplied in the U.S. But tighter regulations for summer blends have made it increasingly difficult to find foreign-made gasoline that meets those requirements.

Now that those summer rules are in force, the volume of imported gasoline has fallen sharply — from about 1.6 million a day in mid-May to just 958,000 barrels per day as of last week.

6. Tight inventories: In summers past, spikes in gas prices — especially in local markets — have often been caused by temporary shortages. That’s more likely to happen when there’s not a lot of gasoline in storage to smooth out any distribution hiccups.

“Every year becomes more of a logistical nightmare,” said Kloza. “We operate on about the same storage that we had 20 years ago. So the storage system is still very, very shallow.”

7. Futures fear factor: In the end, weather holds the potential to create the biggest havoc — as back-to-back hurricanes demonstrated last fall. Though the odds are slim that such severe damage will be repeated, memories are fresh of what bad weather can do to gasoline prices.

That means that investors and commercial customers who buy and sell gasoline in the futures markets will likely remain skittish as this fall’s hurricanes approach. And since futures prices tend to spill over into the wholesale and retail market price, the “fear factor” will continue to be felt at the pump.

“There’ll be enough fear, apprehension and general anxiety about what could happen to keep prices high,” said Kloza.

8. Mother Nature: Though it’s impossible to predict just how bad this hurricane season will be, the odds are against the kind of devastating damage seen last fall in the relatively small Gulf Coast corridor that produces nearly half of U.S. gasoline supplies.

But it wouldn’t take another direct hit by a Category Five storm to sent pump prices higher. Hurricanes and severe tropical storms anywhere in the Gulf would likely interrupt shipments of crude oil to refineries as well as tanker shipments of gasoline to local market.

And any spot shortages can be counted on to produce short-term local spikes in pump prices.

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