Gas prices leap into the new year

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The San Diego Union-Tribune (California)

The new year has begun ominously for motorists, with gasoline prices rising sharply and signs pointing to further increases ahead.

Gasoline prices in the San Diego area have risen about 10 cents a gallon since New Year’s Eve, according to the Utility Consumers’ Action Network, with the increase pushing the regional average for unleaded regular to $2.36 per gallon.

Adding to fears of additional increases in pump prices, crude-oil futures for February gained more than $1.40 a barrel yesterday, to settle at $64.21 in trading in the New York Mercantile Exchange.

Higher oil prices typically translate into higher gasoline prices within weeks — or days.

Experts blame a host of factors for the increases: a sharp rise in speculation by traders in petroleum products, expected shutdowns at refineries as they shift to summer gasoline blends and increases in product demand.

Consumer advocates add one more factor: control of the industry by a small number of petroleum companies.

Jamie Court of the Foundation for Taxpayer and Consumer Rights in Santa Monica said the petroleum industry eased up on pricing in the wake of the devastating hurricanes on the Gulf Coast, fearing a consumer backlash. But now he said the industry is tightening supplies. “We need better eyes and ears on this industry,” Court said.

A spokeswoman for the Western States Petroleum Association said prices are
determined by supply and demand, as well as anxiety about the actions of major
producing countries like Russia.

Anita Mangels, the spokeswoman, noted that while demand for gasoline has been rising, refineries are doing extensive maintenance work, which in some cases was deferred in the wake of the hurricanes.

It all spells bad news at a time of the year when gasoline prices often fall to their lowest levels.

At this time in 2005, for example, regional gasoline prices averaged about $2.04 per gallon, then headed to their lowest point of the year, $1.98 on Jan. 20.

But Charles Langley, who oversees the gasoline monitoring project for San Diego-based UCAN, said motorists should no longer expect to see that trend. He predicted that pump prices will rise in coming weeks.

“It’s like a malarial economy — fever followed by chills followed by fever — and every fever gets worse,” Langley said.

In 2005, San Diego regional gasoline prices peaked at $3.06 per gallon in early September and then declined for the remainder of the year. Near the end of December, regular unleaded bottomed out at $2.26 per gallon in the UCAN regional survey.

Analysts say strong global demand and a thin supply cushion are among the underlying reasons for rising prices now, although similar factors have been in place for some time.

Because of those conditions, the analysts say, every output disruption, or potential threat of disruption, feeds into a bullish outlook, sending prices higher.

The war in Iraq, labor unrest in Nigeria and hurricanes in the Gulf of Mexico are just a few of production snags the industry has faced in recent years.

But other analysts say the quick rise in oil prices at the start of 2006 has little to do with any change in the fundamental balance between supply and demand.

Instead, they point to a 7 percent surge in the number of Nymex crude-oil contracts opened in the first two trading days of the year as a sign that hedge funds and other speculators continue to pour money into the market.

“There’s an element of investment money where they could just as easily be trading GM, euros or oil, and those are the people that have come back into the market early in 2006,” said Peter Beutel, an oil-market consultant with Cameron Hanover in New Canaan, Conn.

“This has absolutely nothing to do with supply and demand,” Beutel said, though from a technical trading standpoint it is a very bullish trend.

Oil prices have been rising since mid-December, and analysts are saying that the cost of refined products such as gasoline are likely to rise as the year progresses.

Among the pressures on gasoline prices expected in 2006 are new environmental regulations. Taken together with other factors, one analyst said gasoline prices could reach $ 3 a gallon nationally by summer.

Perhaps the only bright spot in the energy picture has been an easing of natural gas prices, which have hovered at high levels for months. A mild start to winter has kept prices down lately for the only logical trend in the energy market right now, Beutel said.

A small consolation for Californians is that average prices in the state — typically among the highest in the country — are for the moment two to three cents lower than the national average.
The Associated Press contributed to this report.

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