Gasoline Prices Expected to Fall After Holiday Jump

Pump prices for California gasoline rose sharply in the latest week on the heels of a surge in wholesale prices, the U.S. Energy Department said Tuesday. But in a welcome omen for motorists, wholesale prices began retreating in the afternoon.

The average price for self-serve regular at California stations jumped to $1.643 as of Monday, or nearly 11 cents from $1.535 the previous week, the agency’s Energy Information Administration said in its weekly report.

The increase--which still left the average price about 15 cents a gallon below its year-ago level--was no surprise. Wholesale markets surged last week amid fears that glitches at several California refineries, together with strong consumer demand for gasoline during the Labor Day weekend, might strain supplies.

The higher wholesale prices--effectively what dealers pay for fuel not covered under contract, and before they add taxes and their profit margins--were expected to quickly find their way to the pump. In the Los Angeles area, the average price rose 8 cents a gallon, to $1.558 from $1.478 a week earlier, the EIA said.

However, prices often turn lower in tandem with consumer demand after the holiday weekend, and they did exactly that Tuesday at the wholesale level.

The average wholesale price in Los Angeles dropped 4.5 cents, to $1.235 a gallon, which could lead to lower pump prices in the days ahead.

The same trends are evident in national gasoline prices, which have risen sharply in recent weeks because of refinery problems, higher prices for gasoline traded on commodities markets and continued robust demand.

The average national price for self-serve regular rose to $1.545 a gallon as of Monday, from $1.488 the previous week, the EIA reported.

But gasoline futures contracts for October delivery fell 1.81 cents, or 2.3%, to 76.84 cents a gallon Tuesday on the New York Mercantile Exchange. Although the latest price is up 10% from last month, it remains 21% below its level of a year ago.

“Gasoline prices have probably reached a peak and should start falling now,” Geoff Sundstrom, a spokesman for AAA, the automobile association, told Bloomberg News. “Demand should be falling and pump prices should follow.”