Despite persistently low demand, prices for gasoline have spiked over the past week along with crude oil, threatening one of the very few points of relief for the recession-striken U.S. consumer: Cheap gas.
That may be frustrating for consumers with few signs people are driving more now than during what was a dismal summer for the travel industry. People aren't buying much gasoline.
"I wish it could go down under $2," said Cheryl Couture, 50, who was filling up at a Speedway station in Columbus, Ohio, where a gallon had risen to $2.55.
Couture has watched as gas prices have ticked higher. Prices have risen for three straight weeks, reaching a national average Monday of $2.564 per gallon according to auto club AAA, Wright Express and Oil Price Information Service. The Energy Information Administration put the national average for unleaded regular at $2.574 per gallon.
Rather than rising consumer demand or a tightening of supply, the falling U.S. dollar is most likely to blame.
All one needs to do is look at the price of crude, which crossed $75 for the first time on Wednesday, then neared $80 on Monday.
A cheaper dollar lures more investors into the oil markets because oil is bought and sold with the U.S. currency. Investors, many of whom are betting on a further rally in crude, can buy more oil when the greenback loses value against other currencies. The dollar has continued to fall throughout the month.
And the rising price of crude is exacerbating problems that already existed for the refiners that make and sell gasoline.
People are driving less, trucking companies are shipping less, and airlines are cutting back on jet fuel purchases because businesses travel has ebbed.
That lack of demand has forced refiners to cut back production to levels more common in the aftermath of a hurricane.
And because crude prices are rising, profit margins at refiners who must buy crude to make fuel are shrinking. As a result, they are making even less fuel.
U.S. gasoline supplies fell by more than 5 million barrels last week, but are still well above normal levels at this time of year.
Gasoline purchases by Americans plunged in late 2007 when the recession began to grip the country. Between November 2007 and October 2008, the nation collectively drove 100 billion fewer miles, the largest continuous decline in history, according to the Federal Highway Administration.
Miles driven through July of this year are down 1.25 percent despite the cheapest gasoline in three to five years.
San Antonio-based Valero Energy Corp. last month said it would idle two units at its Delaware City, Del., plant, cutting about 150 jobs, and Sunoco Inc. earlier this month said it would indefinitely idle its West Deptford, N.J., facility, which has about 400 full-time workers.
"Refiners don't want to own crude, it's Wall Street traders who want it and I'd like for someone to explain that to me," said energy analyst Stephen Schork. "If we're spending a greater proportion of our incomes on gas right now, that doesn't bode well. It's less money we're spending elsewhere."
Prices remain relatively low so it's not clear how that would affect consumer thinking on fuel costs. Few people noticed that this has been the biggest run up in October gasoline prices since at least 2000.
James Hamilton, an economist at the University of California San Diego, doesn't expect the recent jump to be an economic tipping point like last summer when gasoline prices spiked to a record $4.11 a gallon.
That could change if prices top $3 per gallon, given the economic environment, he said.
Most energy experts see no fundamental reason for rising prices and doubt that gasoline will reach that high, at least this winter.
Benchmark crude for November delivery rose $1.08 to settle at $79.61 on the New York Mercantile Exchange.
Because crude makes up about 64 percent of the cost of each gallon of gas, pump prices are likely to follow.
Gas prices have lagged oil prices so far and will likely rise another 10 cents a gallon over the next week, said Andrew Lipow, president of Lipow Oil Associates.
He too cites the weak dollar and policies by the U.S. Federal Reserve.
"We're hearing word that they'd like to see a stronger dollar, but really no action," Lipow said.
In other Nymex trading, heating oil rose 2.25 cents to settle at $2.0522 a gallon and gasoline for November delivery was essentially flat, closing at $1.9872 a gallon. Natural gas for November delivery rose 5.2 cents to settle at $4.835 per 1,000 cubic feet.
In London, Brent crude for December delivery rose 78 cents to settle at $77.77 on the ICE Futures exchange.
http://news.yahoo.com/s/ap/us_oil_prices
Topic: Crude nears $80 and gasoline rises for third week (Read 878 times)