Wednesday, March 10, 2010

Gas Pump Prices are Creeping up Again

Good news for energy companies – bad news for the consumer. Prices at the pump are increasing, with the average national price for a gallon of gasoline jumping 5 cents in the last week, to just above $2.75. “That’s a drag on the economy,” said Tom Kloza, chief oil analyst at the Oil Price Information Service, who estimated that consumers were paying just over $1 billion a day at the pump, about $250 million more than this time a year ago. Kloza predicts, as well as the The Energy Information Administration, that gasoline prices will top out this month at about $3 a gallon nationally and $3.25 in California.

Part of the increase in gasoline prices is seasonal. Prices typically go up in the spring as refiners switch to more expensive blends of gasoline. Demand usually picks up as motorists emerge from hibernation and hit the road. However, other factors are contributing to the rise - optimism about the economy, new tensions in oil-producing Nigeria and reports that China intends to build up its strategic reserves have pushed oil prices this week to around $82, about a $10 increase in the last month.

Gasoline accounts for about 4 percent of the typical family's budget,but consumers tend to pay the increase at the pump instead of driving less. That leaves less to spend on clothing and other household purchases. Sung Won Sohn, an economics professor at the Smith School of Business at California State University, lowered his forecast for U.S. economic growth to 3 percent, from 3.2 percent, because of the anticipated rise in energy costs.” Higher gasoline prices are like a tax that depresses overall consumer spending",he said.

Don’t expect gas prices to test the $4 per gallon level, as it did in 2008. To get to even $3.50, you need crude prices near $120 or $125 per barrel; numbers that are not probable for 2010. Even so, as we reach $3 a gallon, it is sure to take a bite out of the average consumer’s pocket.

C. Cohn

Sources: Associated Press, NY Times, LA Times

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