AAA: Crude oil reaches six-week high

Prices at the pump surpassed the record annual average price established in 2011 ($3.51 gal) this week and have done so in record time.

In 2008, the year that saw the all-time high price for regular self-service gasoline ($4.11 gal) the $3.50 per gallon mark wasn’t topped until April 21.  Last year, gasoline prices didn’t surpass $3.50 per gallon until March 8. This year, gasoline topped $3.50 per gallon on Saturday, Feb. 11.

Recent history suggests that when fuel prices surpass $3.50 per gallon, they stay there for some time.  In 2008, regular gasoline spent 138 consecutive days above that mark.  In 2011, the stay was even longer, with motorists paying more than $3.50 per gallon for 203 consecutive days.  The national average retail price for regular grade gasoline climbed to $3.53 per gallon this week, 3 cents higher than a week ago, 15 cents higher than month ago prices and 38 higher than a year ago.  Gas prices are within 58 cents of the all-time record high ($4.11 gal) set in July 2008.

Crude oil topped the $100 threshold on Monday and settled above the benchmark each day this week.  Multiple factors contributed to crude oil’s surge – Iran’s top oil buyers in Europe are making substantial cuts in supply months in advance of European Union sanctions, prompting Iran to threaten to withhold its oil deliveries and to block the Strait of Hormuz, through which one-fifth of the world’s oil flows; Greece expects to get approval from euro zone finance ministers to begin a debt swap scheme with private bondholders; the number of Americans filing for new unemployment benefits unexpectedly fell to a near four-year low last week, suggesting the labor market recovery was quickening.  Crude oil marked its biggest weekly gain since late December to close the week at $103.24, up 12 percent in the last 6 weeks and up 21 percent from a year ago.

In its weekly report, the Energy Information Administration (EIA) showed the nation’s crude oil stocks fell by 171,000 barrels to 339.1 million barrels.  Gasoline stocks rose 400,000 barrels, to 232.2 million barrels.  EIA data showed gasoline demand crept up 128,000 barrels per day (bpd) to 8.167 million bpd.  Year-to-date gasoline demand measured 7 percent below 2011 levels.  Total petroleum demand rose almost a million bpd to 18.655 million bpd, yet remains over a million bpd shy of where demand was in mid-February last year.

“Record setting gas prices for this time of year have left motorists wondering why prices are so high and how high prices will climb this spring and summer, a time when prices typically rise due to increased seasonal demand,” said Martha M. Meade, Manager of Public and Government Affairs for AAA Mid-Atlantic.  “Global demand, speculation and crude oil prices are all influencing gas prices.  While global demand is up, U.S. demand is at its lowest level since January 2000.  Rising crude oil prices and the recent shut down of several refineries in the U.S. and the Virgin Islands have meant refineries were spending more to produce gas than they could sell it for.  Gas prices could ultimately push $4.00 per gallon in the coming months.”

Gas prices have jumped nearly 10 percent nationally since the beginning of the year and the pain at the pump is expected to get worse in the next few months.  Prices for regular grade gasoline could push $4.00 per gallon by the end of April or early May.  Demand is at historically low levels, so what is driving the higher pump prices?  Analysts say blame demand on the rest of the world, along with some speculation and fear, as well as diversity in crude oil prices.  Tom Kloza, chief analyst for Oil Price Information Services (OPIS), notes that unlike any other time, the diversity in gasoline prices across the nation is being influenced by an unusual diversity in oil prices.  He said in the upper Midwest a refinery using Canadian oil can purchase crude at $50-60 a barrel less than east coast refiners, which tend to use West African oil.  For that reason and because of refinery shutdowns on the east coast, the gasoline in the northeast could be among the highest priced this year.  Gasoline prices will ultimately depend on where oil prices go, and whether the situation in Iran pressures crude further.