Summer Forecast: High Gasoline Prices
Gasoline prices nationwide already have peaked, but tight supplies and other complications will keep fuel costs about 17 cents a gallon higher than they were last summer, government forecasters said Tuesday.
In California, motorists will continue to pay about 50 cents more than the national average for a gallon of regular gasoline and will be especially vulnerable to new price hikes in the months ahead, according to the forecast by the Energy Information Administration.
A month ago, the government predicted prices nationally would settle around $1.70 for the summer. But citing a drop in the price of crude oil, the EIA now says gasoline prices will average $1.56 a gallon across the country, 12% higher than the summer average of $1.39 in 2002.
EIA’s report did not provide estimates for summertime prices in individual states. However, the report singled out California as an especially complicated and vulnerable market this summer.
In a normal year, the state’s unique blend of gasoline, which reduces smog, precludes outside refineries from supplementing California’s market when refinery troubles pinch supplies. But this year, there’s an added complication: Some refineries already have switched to making ethanol-blended fuel while others continue to produce gas with the additive MTBE, a situation that further constrains supply because the two formulas can’t be mixed.
“You’re going through a fuel change, so the probability of something going wrong is a little higher” in California, said Joanne Shore, an EIA senior analyst. “This summer could have a few more bumps for California, but if all goes well, it should settle down.”
EIA’s new report comes amid substantial decreases in the cost of crude oil, which has fallen more than 30% since the end of February.
In response, average retail gasoline prices have fallen for three straight weeks, with nationwide costs dropping 10 cents to $1.63 a gallon, and California prices inching down 3 cents to $2.115 a gallon over the same period.
Government experts warned, however, that market conditions are in flux, with war continuing in Iraq and lingering problems stunting crude oil exports from Venezuela and Nigeria.
Furthermore, unusually low U.S. inventories of crude oil and gasoline make the supply balance particularly fragile this year. Demand for gasoline is expected to rise to 9.18 million barrels a day, up 1.6% this year, probably forcing refiners to import record amounts of fuel and blending components, the EIA said.
