Gas Prices Pass $3.40 A Gallon, Are Expected To Rise Higher

By: AP
By: AP

NEW YORK - Retail gas prices pushed past a record high $3.40 a gallon Thursday, fulfilling expectations that they'll keep climbing toward $4 as the summer driving season approaches.

Oil prices, meanwhile, fluctuated after setting yet another record high overnight. Analysts said investors were locking in gains from crude's ongoing rally and trying to determine whether prices have more room to rise.

At the pump, the average national price of a gallon of unleaded gas rose 1.9 cents overnight to $3.418 a gallon, according to a survey of stations by AAA and the Oil Price Information Service. Diesel fuel also hit a new record of $4.146 a gallon after jumping 1.7 cents overnight, the survey said.

The soaring cost of both fuels is pressuring consumers, who gas up their cars and buy goods that grow more expensive because of rising transportation costs. And their plight will only worsen; many analysts expect average national gas prices to peak close to $4 a gallon later in the spring. Prices are already that high in some parts of the country, including California.

In part, gas prices are rising because refiners are switching over from winter grade gasoline to the more expensive but less polluting fuel they're required to sell in the summer. That has pulled supplies lower lately as refiners try to sell off all of their winter fuel. Short supplies of key blending components needed for summer gasoline are exacerbating the problem.

But rising crude prices and expected higher summer demand for gasoline are also boosting prices. Demand for gas has fallen since January, but is expected to rise from current levels as families hit the road for vacation in a few months.

"We have the perfect storm brewing going into (spring)," said James Cordier, president of Tampa, Fla., trading firms Liberty Trading Group and OptionSellers.com.

Oil, meanwhile, has spiked higher on concerns about falling supplies and rising global demand, and as a weaker dollar has attracted speculative investors to crude futures. Crude rose to a new trading record of $115.54 overnight as the dollar fell to a new low against the euro, but later pulled back when the dollar strengthened.

In morning trading, light, sweet crude for May delivery fell 11 cents to $114.82 a barrel on the New York Mercantile Exchange, but alternated between gains and losses.

Commodities such as oil are seen by many investors as a hedge against inflation and a weaker dollar. A falling dollar also makes oil cheaper to overseas investors. The effect tends to reverse when the U.S. currency strengthens.

Crude prices have jumped more than 4 percent this week due in part to the falling dollar, but also because of supply and demand concerns in the U.S. and abroad. Domestic gasoline and crude supplies fell last week. Meanwhile, Russian oil production dropped this year for the first time in a decade, according to an International Energy Agency report. China's economy continues to grow at a breakneck pace, demanding more oil and fuel. And the Federal Reserve is expected to cut interest rates at least twice more this year, which will further weaken the dollar.

The combination of all these factors will push oil prices even higher in coming weeks, Cordier said.

"I think we're going at least to $125," he said. "That'll probably translate to about $3.80 (a gallon) at the pump."

In other Nymex trading Thursday, May gasoline futures rose 1.08 cents to $2.9498 a gallon while May heating oil futures fell 2 cents to $3.263 a gallon. May natural gas futures rose 2.1 cents to $10.454 per 1,000 cubic feet.

In London, Brent crude futures rose 4 cents to $112.70 a barrel on the ICE Futures exchange.

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Associated Press writers Pablo Gorondi in Budapest and Gillian Wong in Singapore contributed to this report.


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