Oil, Gas Prices Hit New Heights in State, U.S.

Oil and gasoline prices hit new highs Monday, sparking warnings that this may be the most expensive summer ever at the pump.

Shrugging off news that more oil was on the way, traders in New York sent the cost of benchmark crude up $1.79 to a record close of $41.72 a barrel, erasing hopes that oil futures would settle back below the $40 mark anytime soon.

On Friday, crude oil fell below $40 in New York for the first time in nearly two weeks after Saudi Arabia promised to pump more oil to ease prices. Experts had hoped oil prices would fall further Monday because of a weekend pledge from Saudi Arabia to increase production even more, but word of new supply glitches intervened.

“I think had we not had any more bad news, the Saudi oil would have been enough to calm the waters,” said Phil Flynn, senior energy trader for Alaron Trading Corp. “But right now, oil is really outside of anyone’s control. This market is going to be totally headline driven.”

The news was no better for gasoline. In fact, a growing number of market watchers have begun predicting $3-a-gallon prices this summer -- and that’s for self-serve regular, not premium-grade fuel.

Regular gas for June delivery closed Monday at a record $1.458 a gallon, up 4.1 cents on the New York Mercantile Exchange. Retail prices, meanwhile, continued their relentless rise.

California’s average price for self-serve regular leaped 5.5 cents during the last week to $2.324 a gallon, while the nationwide average jumped 4.7 cents to $2.064 a gallon -- a record high in both cases, according to Monday’s survey by the Energy Information Administration, an arm of the Energy Department.

Adjusted for inflation, both the oil and gasoline prices are lower than they were in the early 1980s. That, however, might be little comfort to consumers readying themselves for the Memorial Day weekend, the traditional kickoff to the summer driving season and one of the nation’s most popular holidays for road trips.

Nearly 31 million U.S. travelers are expected to hit the road for trips of 50 miles or more over the coming weekend, up 3.4% from a year ago, AAA said.

Analysts say motorists probably will be paying even more for gas by the start of their weekend trips, and the outlook for the entire summer isn’t much better. “We’re going to see prices continue to rise through Memorial Day.... We could easily add another nickel or dime very quickly,” Flynn said. “I think California is destined to pay $3 a gallon at some point this summer.”

Flynn and others say the record-high cost of both oil and gasoline reflects extra-tight supplies that have been stretched by unexpectedly strong demand worldwide, fueled mostly by the growing economies in the United States and China.

“We’re facing some very challenging times,” said Amy Myers Jaffe, senior energy advisor at Rice University’s Baker Institute. “Every molecule that can be produced is being produced, and it’s not enough.”

Any hiccup in the oil world -- everything from a bad hurricane season in the Gulf of Mexico to outages at big refineries or a sudden disruption in exports from Saudi Arabia or Venezuela -- will kick oil prices toward the unthinkable price of $50 a barrel, several experts said.

Even longtime oil investor T. Boone Pickens has joined the pessimists. If there’s more turmoil in the Middle East, he said in a recent speech in Dallas, “I think you’ll see $50 a barrel before you see $30. And I think you’re going to see $3 a gallon for gasoline before you see $1.75.”

On Monday, for example, oil prices rose largely because a string of events spooked the markets enough to offset the soothing effects of Saudi Arabia’s promise to put out more oil, Flynn said.

The events included attacks on Iraqi pipelines that forced the shutdown of a refinery; a pipeline fire that shut down Washington state’s largest fuel pipeline over the weekend, stopping the flow of 12 million gallons of gasoline, diesel and jet fuel a day; and a leak that on Saturday forced the shutdown of a Shell Oil Co. platform in the Gulf of Mexico that produces 150,000 barrels of oil daily.

“It’s going to be very difficult to get through the summer unscathed,” said Flynn, the commodities expert. “We hold our breath every day ... but the odds are pretty good that something bad is going to happen.”

If a refinery goes down in California, not an uncommon occurrence, then the $3 mark in gasoline is a near certainty, according to Severin Borenstein, director of the UC Energy Institute. “We’re going to be in that situation, with that risk, all summer.”

Added Charles Langley of the Utility Consumers’ Action Network: “I would budget $2.30 a gallon for the next few months.”