GAS: Pump prices up 23 cents this week

Rise is steepest in years; $4.39 is also new record

By CHRIS BAGLEY - Staff Writer | Thursday, June 5, 2008 7:16 PM PDT ∞

Gasoline prices shot up this week at their fastest rate in years, smashing the previous record for the 16th time in 18 weeks, according to weekly surveys for the North County Times.

Regular-grade gas climbed 23 cents to $4.39 per gallon, according to a survey of 151 stations on Thursday by the Utility Consumers' Action Network. Diesel fell to $5.06 from a record $5.11, according to the survey.

The steepening increase in gas prices was alarming, even after a four-month surge, said Charles Langley, who conducts the survey. Still, the wholesale price of raw, unblended gasoline fell 24 cents on Wednesday before rising again on Thursday, Langley said.

"We view this volatility with deep suspicion because it smacks of market manipulation," Langley wrote in an e-mail. "Not to add fuel to the fire, but I think it is a five-alarm fire."

The overall fall of several cents this week could translate into lower pump prices within a few days, Langley said.

Regular unleaded has risen 41 percent in the last 12 months and 44 percent since a dip in late January, according to Langley's surveys. Based on historical spending patterns, current prices, and recent gas-sales data from a state tax agency, the average household in San Diego County now spends more than $3,500 a year on gasoline.

The price spike at the pump comes even as oil edges back from more than $130 per barrel. Light, sweet crude for July delivery was trading in the $120 to $123 range earlier this week, but rose $5.49 to $127.79 on the New York Mercantile Exchange. It was the biggest single-day price increase in the history of the Nymex crude contract.

Crude's surge came as the dollar fell in response to comments by European Central Bank President Jean-Claude Trichet suggesting the bank could raise interest rates.

"Oil, which was very weak, rallied on those comments," said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago. "They're out of step with the U.S., which is weakening the dollar."

When interest rates rise in Europe or fall in the U.S., bond investors tend to move money into Europe and out of the U.S., weakening the dollar against the euro. Many investors buy commodities such as oil as a hedge against inflation when the dollar is falling. Also, a weaker greenback makes oil less expensive to investors dealing in other currencies. Those investors tend to step up their oil purchases, which pushes up its price for those who deal in dollars.

Many analysts believe the dollar's decline has been one reason why oil prices have nearly doubled from year-ago levels. The rise in oil, which now accounts for about 70 percent of the price of gasoline, has in turn pushed gas prices to records.

Gasoline's average refining margin, a measure that includes both profit and cost, fell below 25 cents per gallon last month from about $1 a year ago, according to estimates by the California Energy Commission. Gasoline's rise this week paralells an increase in the estimated refining margin, to more than 50 cents per gallon.

Independent gas stations are losing an average of at least 25 cents on each gallon they sell, the commission estimated on Monday. Stations that sell gas under agreements with specific refiners such as Shell and Valero were earning an estimated average of less than 1 cent per gallon.

Earlier this week, Federal Reserve Chairman Ben Bernanke indicated that more interest rate cuts are unlikely in the U.S. Bernanke's comments sent the dollar higher, helping push oil prices lower.

The average national price of a gallon of gas rose by a fraction of a cent overnight to a record $3.989 on Thursday, according to a survey of stations by AAA and the Oil Price Information Service. Prices haven't fallen since May 6, AAA records show.

"We may still get to $4 in the next couple of days, but I do think ... it's just a matter of time before the retail price starts to stall," AAA spokesman Geoff Sundstrom said.

Diesel prices are already falling; the average national price of a gallon of diesel slid 0.8 cents overnight to $4.77, according to AAA and OPIS, though prices are above $5 per gallon in some areas. Diesel prices peaked at a record $4.792 on May 30, and have risen $1.87 in a year due mostly to rising demand for the fuel in the developing world. High diesel prices have boosted prices of food and consumer goods transported by truck, ship and rail, putting additional pressure on families already struggling with $4 gas.

Oil's decline since May 22 follows concerns about demand. Recent data from the U.S. Energy Department and the California Board of Equalization show that high prices have led consumers to buy less gas. Automakers are cutting production of large SUVs and trucks, and sales of those vehicles have been declining in San Diego County for more than a year now, according to a local association of dealers.

Still, gasoline refiners, wholesalers and retailers are feeling pressure to keep prices high, for now. Crude prices have risen 89 percent in the past year, while gas prices are up only 27 percent. That discrepancy has pressured profit margins along the gasoline supply chain; falling demand may have prevented gas suppliers from raising prices as much as they would like.

The Associated Press contributed to this article. Contact staff writer Chris Bagley at (760) 740-5444 or cbagley@nctimes.com.

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