U.S. Gasoline Prices Inching Up
The average U.S. gasoline price increased during the last week, a federal survey showed Tuesday, as oil prices jumped and new rules kicked in that could boost nationwide fuel costs even more.
California bucked the upward trend. The statewide average cost of gasoline fell for the 13th week in a row and even settled below the U.S. average -- a notable reversal for a state where retail prices have been as much as 31 cents a gallon more than the nationwide average. The last time California prices dipped below the U.S. average was Sept. 5, after Hurricane Katrina hit the heart of U.S. refining operations and sent prices above $3 a gallon.
The average pump price in California fell 2 cents to $2.213 for a gallon of self-serve regular during the week ended Monday, according to a survey released Tuesday by the Energy Information Administration, an arm of the federal Energy Department. Nationwide, the average cost of gas rose 4.1 cents to $2.238 a gallon, the agency said.
Oil prices, an indicator of future gasoline costs, jumped $2.10 a barrel Tuesday on the New York Mercantile Exchange to close at $63.14 for February delivery of light, sweet crude. Gasoline futures rose 2.31 cents to $1.7505 a gallon on the Nymex.
Traders attributed the oil increase to several factors, including aggressive buying from investment funds and unease over political developments in Russia, a major oil producer.
“The commodity funds have come back in the market, and that was the main driver,” said Phil Flynn, senior market analyst at Alaron Trading Corp. in Chicago. “There also were a number of geopolitical things that happened and that raises the risk factors in oil. It adds a lot of wild cards.”
Flynn noted that Russia’s decision to withhold natural gas supplies from Ukraine on Sunday after the country refused to pay a fourfold price increase shows that Russian leaders are “willing to use their natural resources to achieve political ends.” That prospect shook the U.S. oil market -- even though Russia resumed gas deliveries Tuesday -- because “we’re supposed to have a reliable supplier in Russia,” Flynn said.
Higher oil prices don’t bode well for fuel prices in 2006. But there are other reasons to worry too.
New fuel specifications that take effect this year could squeeze fuel supplies throughout much of the United States, already suffering from insufficient refinery capacity, infrastructure bottlenecks and a growing dependence on imports.
On Sunday, federal rules took effect that lower the sulfur content of gasoline. It’s the latest in a series of decreases, and analysts say the switch will make higher-sulfur imports off-limits.
“You can’t bring that [high-sulfur] stuff in anymore and blend it with really good stuff to average it down,” said Tom Kloza, chief oil analyst at the Oil Price Information Service.
In California, fuel recipes will change little because of already-stringent state regulations. But there could still be an indirect effect, analysts say.
As other parts of the country ramp up cleaner-fuel production, California refiners will face greater competition for high-quality fuel and its ingredients, including ethanol, a gasoline additive adopted by state refiners in 2004 when methyl tertiary butyl ether, or MTBE, was banned in California because of its link to water contamination.
Kloza estimates that many U.S. refiners will drop MTBE in favor of ethanol because Congress failed to pass MTBE liability protection last year.
Another concern is that U.S. refiners are expected to undergo an unusually high amount of production downtime in the early part of the year, including some work that was postponed in the aftermath of Hurricane Katrina.
Joanne Shore, senior oil market analyst for the Energy Information Administration, put it this way: “If you bought one of those hybrids, you’re probably not going to regret the purchase this year.”
