Oil Price Jump Could End Relief at Pump

Motorists in California and nationwide caught a small break at the gas pump last week, but a renewed surge in oil prices Monday could make it a short-lived reprieve.

Crude futures jumped $1.16 to $74.40 a barrel on the New York Mercantile Exchange as continued fighting in the Middle East rattled traders. Natural gas prices surged 14% to a near-six-month high on concerns that a heat wave blanketing the Midwest and Northeast would drive up demand from power producers.

The action in the futures markets took the edge off any optimism that might have followed the latest federal gasoline price survey. The Energy Department reported that pump prices in California slipped last week for a second straight week and were virtually flat nationwide.

“We’re still worried about what happens in the Middle East and what happens in Nigeria,” said Phil Flynn, senior market analyst at Alaron Trading Corp., referring to recent attacks by Nigerian rebels on production facilities in that country.

“If anything happens to disrupt supply in either of those areas, it could cause [gasoline] prices to go back up.”

Economists have watched nervously as oil prices hit record levels this summer, dragging gasoline prices along for the ride. Because filling up their vehicles takes a bigger bite out of their wallets, consumers have cut back on other spending -- a key reason the economy is slowing.

So far, though, high prices haven’t curbed Americans’ driving habits. Although polls show that consumers say they are cutting back on their driving, government statistics indicate that demand is growing compared with last year.

The airline industry is experiencing a similar phenomenon. Faced with record jet fuel prices and a forecast industrywide fuel bill of $38.4 billion this year -- up from $12.7 billion in 2002 -- carriers have jacked up fares and cut back on flights.

But airliners are taking off with record-high load factors -- the percentage of seats filled -- and most airlines are reporting strong financial results for the second quarter, traditionally the industry’s strongest.

“It’s amazing. Air travelers are continuing to book in almost record numbers this year,” said Terry Trippler, an analyst with Myvacationpassport.com, a fledgling travel membership program. “Based on advance bookings, post-Labor Day travel is up 7% to 9% over last year.”

One reason is that air travel gets more price-competitive the higher gasoline prices climb. Another, Trippler said, is that Americans are reluctant to skip a vacation.

Analysts surveyed by Bloomberg News are estimating that the Energy Department’s weekly report on gasoline stockpiles will show a decline as vacationers take to the highways and demand stays strong.

“They’re going to delay the new car or the new couch,” Trippler said, “but they’re not giving up that trip.”

Nationwide, pump prices ticked up to $3.004 a gallon last week from $3.003 the week before, the government reported. That was still short of the record of $3.069 reached last year in the wake of Hurricane Katrina.

Gasoline prices in California fell for the second straight week, slipping to $3.198 from $3.220 the prior week. In New York, gasoline futures slipped less than a penny Monday to $2.229 a gallon.

Natural gas futures jumped $1.027 to $8.211 per 1,000 cubic feet, the highest close for the near-month gas contract since early February.

Natural gas supplies typically build during the summer, putting downward pressure on prices. But the heat wave that hit California last week and is now baking the eastern U.S. has created record demand for electricity -- much of it produced by gas-fired power plants.

The government reported unexpectedly tight gas stockpiles last week and may do the same this week. In addition, with hurricane season underway, traders are keeping an eye on the Gulf of Mexico, where oil and gas production was severely disrupted by last year’s storms.