Archive for Friday, May 25, 2001

Gasoline prices continue to rise

Wholesale prices hit record; analyst sees no sign of relief

May 25, 2001

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Motorists could be looking at $2-a-gallon gasoline this summer, with fears of a supply crunch sending wholesale prices soaring to record heights this week just as the busiest driving season is getting under way.

"There is still no sign of any relief on the way," said Peter Beutel, president of Cameron Hanover Inc., which publishes a daily newsletter on energy markets. "It now looks like $2-a-gallon retail gasoline prices will become a reality everywhere in the country."


What has wholesale buyers scared is a dearth of cleaner-burning fuel needed to meet summer air quality requirements, especially on the East Coast. That sent wholesale prices to a record high of $1.175 per gallon during trading Thursday on the New York Mercantile Exchange.

While prices dropped by the end of the day, analysts said they would remain volatile into the summer and probably increase.

At the pump, the average price of gas has risen more than 20 cents in just six weeks to $1.69 for a gallon of regular unleaded. Prices are up 10 percent from last year.

"People are price shopping," said Lanae Muldrow, manager of a Chevron station in Phoenix. "If you drive a SUV, you could spend $50 filling it up for the long drives."

Debra Warren of Jacksonville, Fla., is considering other modes of transportation.

"If it keeps going up, I may have to get a bicycle," said Warren, 35, an Aetna Insurance Co. employee who has saved a few bucks lately by "having more clients coming to me, instead of going to them."

Gasoline in-ventories in the United States are 26 percent lower than they were two decades ago and no new refineries have been built since 1976. With refiners struggling to keep up with demand, machinery is being worked extra hard and factories have had to shut down for repairs.

"It's a vicious cycle," said Mike Fitzpatrick, an analyst at Fimat USA.

"The only way to turn it around is to build more refineries."

Total inventories of reformulated gasoline declined 1.4 million barrels to 39.9 million barrels last week, according to the Energy Department. A year ago, there were 42 million barrels on hand.

The high price of natural gas also plays a role in today's high price of gasoline. MTBE, an additive used to make some reformulated gasoline, is made from methanol, a derivative of natural gas.

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