Gasoline Prices Drop in State

Retail gasoline prices declined across most of the nation in the last week, with California’s average price falling 3.5 cents a gallon, the Energy Department said Monday. But analysts warned that the price relief may be trickling to an end.

In California, the average cost of self-serve regular gasoline fell to $3.163 a gallon, about 75 cents above the year-ago level, according to the government’s weekly survey of filling stations.

The U.S. average edged two-tenths of a penny lower to $2.869 from the previous Monday. That was more than 65 cents higher than a year earlier. The Midwest saw the average gasoline price jump 4.5 cents to $2.821 a gallon.

Despite prices that are sharply higher than a year ago, gasoline demand remains strong heading into the four-day Fourth of July holiday weekend, experts said. Supplies are tight, and analysts said slight problems or even the threat of bad weather in the oil-rich Gulf of Mexico would be enough to send prices higher.

As an example, analysts cited heavy rainfall in the gulf region last week that contributed to an oil spill and shut down a 22-mile section of the Calcasieu Ship Channel near the port of Lake Charles, La. That heavily traveled route for ships supplying Gulf Coast refineries may not reopen until late this week.

“Any little interruption means you have to throttle back,” said Tom Kloza, chief oil analyst for Oil Price Information Service. “It’s one of the many little things that will happen this summer. There will be enough of those to keep the pressure on prices.”

Phil Flynn, vice president and senior market analyst for Alaron Trading Corp., said of the continuing gulf region woes: “We just can’t get a break down there.” Daily oil production in the gulf is 15% below the levels that preceded hurricanes Katrina and Rita last summer, and daily gas production is still down by 11%, Flynn said.

In New York futures trading, oil for August delivery rose 93 cents Monday to $71.80 because of international tensions. The markets reacted to Iranian threats over the weekend to use crude as a weapon in the continuing confrontation with the U.S. over nuclear development. That muted news that Iraqi oil production had reached its highest levels since the overthrow of Saddam Hussein, analysts said.

“With Iran and the mullahs making threats about oil over the weekend,” Flynn said, “it’s not helpful to the market.”