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Gas prices continue rise, could set records this spring

By Associated Press

LAST UPDATED: 06:05 p.m. HST, Feb 18, 2012

NEW YORK >> Gasoline prices have never been higher this time of the year.

At an average of  $3.53 a gallon nationally, prices are already up 25 cents since Jan. 1. And experts say prices are going higher and could set a new record this spring.

In Hawaii, the statewide average is $4.24 a gallon, up 49 cents from last year. Honolulu's average is $4.11 a gallon for regular, about 47 cents higher than this time last year.

"You're going to see a lot more staycations this year," says Michael Lynch, president of Strategic Energy & Economic Research. "When the price gets anywhere near $4, you really see people react."

Already, W. Howard Coudle, a retired machinist from Crestwood, Mo., has seen his monthly gasoline bill rise to $80 from about $60 in December. The closest service station is selling regular for $3.39 per gallon, the highest he's ever seen.

"I guess we're going to have to drive less, consolidate all our errands into one trip," Coudle says. "It's just oppressive."

The surge in gas prices follows an increase in the price of oil.

Oil around the world is priced differently. Brent crude from the North Sea is a proxy for the foreign oil that's imported by U.S. refineries and turned into gasoline and other fuels. Its price has risen 11 percent so far this year, to around $119 a barrel, because of tensions with Iran, a cold snap in Europe and rising demand from developing nations. West Texas Intermediate, used to price oil produced in the U.S., is up 4 percent to around $103 a barrel. That's 19 percent higher than a year earlier.

Higher gas prices could hurt consumer spending and curtail the recent improvement in the U.S. economy.

A 25-cent jump in gasoline prices, if sustained over a year, would cost the economy about $35 billion. That's only 0.2 percent of the total U.S. economy, but economists say it's a meaningful amount, especially at a time when growth is only so-so. The economy grew 2.8 percent in the fourth quarter, a rate considered modest following a recession.

High oil and gas prices now set the stage for even sharper increases at the pump because gas typically rises in March and April.

Every spring, refiners suspend operations to switch the type of gasoline they make. Supplies of wintertime gas are sold off before March, when refineries need to start making a new formula of gasoline that's required in the summer.

That can mean less supply for service stations, resulting in higher gas prices. And summertime gasoline is more expensive to make. The government mandates that it contain less butane and other cheap organic compounds because they contribute to the formation of ground-level ozone, a primary constituent in smog. That means more oil, a costlier component, is needed to produce each gallon.

The Oil Price Information Service predicts that gasoline could peak at $4.25 a gallon by the end of April. That would top the record of $4.11 in July 2008.

The national average for gasoline began the year at $3.28 a gallon. The average price for February so far is $3.49 a gallon. That's up from $3.17 a gallon last February, a record at the time. Back in 2007, before the recession hit, the average for February was $2.25 a gallon.

Prices are higher on the East and West Coasts, where gasoline has risen above $3.70 in Connecticut, New York, Washington D.C. and California. This isn't unusual — states on the coasts charge some of the nation's highest gas taxes.

High gas prices put a strain on many people's budgets.

Americans spent 8.4 percent of their household income on gasoline last year when gas averaged an all-time high of $3.51 a gallon. That's double the percentage a decade ago. They could pay even more this year, even though demand is the lowest in 11 years as people drive fewer miles in more efficient cars, says Tom Kloza, chief oil analyst at OPIS.

Gary Goodman commutes into Manhattan from Edgewater, N.J., because gas, tolls and parking make the cost of driving prohibitive.

Goodman, an accountant, commutes by bus. He uses his car mostly for trips to the grocery store or for occasional nights out. He says he has no choice but to eat the higher gas costs.

"I already drive as little as possible," he says.

Paul Dales, a senior economist at Capital Economics says it would take a bigger shift in the global economy — say, a deep recession in Europe or a slowdown in Asia's manufacturing — for pump prices to drop noticeably. Either event would slow oil demand, depressing prices.

But experts expect demand to keep rising. World oil demand is expected to increase by another 1.5 percent to 89.25 million barrels a day in 2012, according to the Energy Information Administration.

In the short term, tensions with Iran are feeding fears that oil supplies could be blocked.

The U.S. and Europe are tightening economic sanctions against Iran over what the West believes is Iran's attempt to build a nuclear bomb. World leaders fear Israel may be planning a strike against Iran, the world's third largest oil exporter.

In response, Iran has threatened to withhold its own oil deliveries and to block the Strait of Hormuz, a waterway along its coastline through which one-fifth of the world's oil flows.

On Friday, an international banking clearinghouse crucial to Iran's oil sales said it is prepared to discontinue services to Iranian financial institutions being targeted by the EU and U.S. sanctions. That could ratchet up the pressure on Iran, but also send oil prices soaring.

The price of Brent crude fell 53 cents on Friday to $119.58. WTI gained 93 cents to $103.24.

Gas prices are already an issue in the presidential campaign. Republican candidate Newt Gingrich spoke several times this week about opening up more federal land to oil and gas drilling as a path toward U.S. energy independence — and lower pump prices.

"Our goals should be to get gasoline to $2.50 or less so that working families can actually get to work and retired families can travel," Gingrich said at a campaign event in Los Angeles Thursday.


Reporter Beth Fouhy in Atlanta contributed to this report.


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HD36 wrote:
The largest increase in demand for oil is coming from the oil producers themselve's. Saudi Arabia uses oil to run their desalination plants, and they only charge 55 cents a gallon for gas. Even though demand for gas in the US is down, refiners can ship it worldwide, where prices are higher. Iran has worked out deals with India to trade oil for grains or gold. The flood of US dollars is chasing a finite quantity of resources resulting in higher prices world wide. China is buying up natural resources instead of purchasing US Treasuries. Oil, and gas prices effect everything that ships and grows. If you've ever wanted to take a trip to a foreign country, now's the time to do it, while the dollar still has value.
on February 18,2012 | 08:11AM
niimi wrote:
We need unsubsidized, true market price for fuel so we can only then truly adjust to real world costs. That said, gas in Hawaii probably hits $5. Price of gas should go much higher so that alternatives are explored.
on February 18,2012 | 08:20AM
Anonymous wrote:
I agree with you. Oil is artificially cheap, in part because a price is not attached to its negative effects and reflected in the price. I am curious on how you would go about determining the fair market price of oil, given all the hidden subsidies and externalized costs to the environment?
on February 18,2012 | 10:21AM
kainalu wrote:
The world is owned by Big Oil - end of story.
on February 18,2012 | 08:21AM
HD36 wrote:
Profit margins on gas are about 3%, government tax is about 15%. Who owns who?
on February 18,2012 | 08:59AM
Anonymous wrote:

Cynics sometimes think American military action is designed to secure "cheap oil." I think they might have it wrong. Oil companies make MASSIVE profits when there is "war, or the rumor of war," against a major oil producing country. The price shoots skyward and billions in profit are reaped.

OK, that a result of war, but that doesn't mean it's a cause of war.

Actually, I think it IS a contributing factor in the decision to go to war. If going to war hurts the profits of major US corporations, they would oppose the war, and depending upon their power, would definitely have influence over both a particular war and the overall attitude in elite circles towards military adventurism in general. But because war generates much more profits for powerful interests than hurt them financially, militarism is incentivized under our system.

So instability and war in oil producing regions serves the interests of the oil companies, unless they own oil wells or refining plants in the country which are likely to be harmed. The oil companies profit. The American people? Not so much.

on February 18,2012 | 10:17AM
svache wrote:
I don't care really, I just ordered a new car that gives me twice the average mileage than my current car is doing so I wouldn't really notice until it's more than double the cost. And, not to forget, it might take away some of the traffic on the roads ;)
on February 18,2012 | 12:30PM
sgiancat wrote:
Get a bike, walk, catch bus! The less you use your car=probably the healthier you are
on February 18,2012 | 01:16PM
LanaUlulani wrote:

This is due in part to Obama's policies such as manufacturing this oil crisis and further devaluing the American dollar. Nowadays incomes are NOT rising but gas prices, food prices, and power prices are.

Unfortunately the innocent people who did NOT vote for Obama have to pay for the idiocy of those who voted for Obama. I feel bad for the innocents in Hawai'i who have to pay more than $4.50 per gallon so they can work only to pay increases in taxes and NEW taxes due in part to local and state poliTRICKans plus Obama's tax hikes. This money in the form of taxes that go to the local, state, and U.S. government should go to the KEIKI and MO'OPUNA instead... not to OBAMA and the oil companies he is helping. How sad for local kids.

on February 18,2012 | 01:40PM
awahana wrote:
I think you mean Bush, not Obama. Confused.
on February 18,2012 | 02:22PM
NITRO08 wrote:
Obama has nothing to do with this what are you smoking! This is the OIL company's FAULT AND NOBODY ELSE STOP MAKING UP STORIES!!!!!!!!!!!!!!!!!!!!!!!!!!!
on February 18,2012 | 03:29PM
niimi wrote:
Um. How can it be the oil companies at fault? If they can't open up new supplies domestically and the OPEC and South American nations are playing games with crude oil supply is it the fault of those who refine the oil and gas? If the refiners were: - blocked from opening up new supply - blocked from building new refineries because so many people say, "not in my backyard" - blocked from a new supply of oil via some new pipeline from Canada
on February 18,2012 | 03:55PM
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