Pump Prices Jump In State Oil Grows Costlier — Traders Betting On Further Rise

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Arkansas gas prices shot up about 30 cents in a little over two weeks as oil prices gained strength and traders bet on increased driving-season demand.

The run-up in price was more than most experts expected, given weaker demand for gasoline because of the economic downturn. But AAA spokesman Mike Right said prices likely will go higher still.

AAA reported Thursday that the average price for a gallon of regular gasoline in Arkansas was $2.243. The highest price in the state, $2.49 a gallon, was reported in Henderson and Blytheville, according to gasbuddy. com, a site that lets drivers report prices they spot in their communities. (Information on Little Rock metro prices is available at www2.arkansasonline.com/gas/) Nationally, AAA reported that regular gasoline cost $2.362 per gallon.

Bruce Clinton of west Little Rock drives a 1989 Jeep Grand Wagoneer, which has about a 16-gallon tank and gets 10 miles to the gallon.

He fills up about once a week, most recently at a Sam’s Club for $2.12 a gallon. In the past few months, his gasoline costs have gone up by about $60 a month while his income has remained fixed.

"And, yeah, that absolutely hurts," he said. "I think in a strapped economy, especially, it hurts even more. I think that everybody’s budgets are so tight, that when you add any expense at all, it’s just very hard to account for." It’s still a far cry from the Arkansas AAA average high of $3.972 reached July 17, but nonetheless crazy to Tom Kloza, director of Gaithersburg, Md .- based Oil Price Information Service.

Gasoline futures prices rose by 61.2 percent last spring from the previous winter’s low, but this year gasoline futures spiked 138 percent from a Dec. 24 low of 79 cents per gallon to $1.87 on Wednesday.

"This is an unprecedented increase," Kloza wrote in an email. "I think you’re looking at slightly higher prices soon, but every instinct and all the training and observation that I’ve had in 30 years suggests that we are peaking and top heavy." Phil Flynn, vice president and energy analyst for Chicagobased Alaron Trading Corp., said it is a strange situation and prices went up much faster than he expected.

"This year the spike is particularly confusing to everyone," he said. "They keep hearing talk that supplies are ample and demand is weak." Right, the AAA spokesman, said he expects that higher wholesale gasoline prices this week will result in more expensive gasoline at the pumps.

Flynn and Right concurred on factors that drive gasoline prices higher: Refineries have stopped producing as much fuel, and gasoline imports are falling, both of which affect supplies just as the summer driving season heats up.

It also seems that the market is preparing for a boost in demand, Flynn said.

"I think demand is starting to improve a little bit," he said. "Demand is still well below where it was a year ago." Right said, "So we may be in for some additional [price] increases as we move forward.

According to the U.S. Energy Information Administration, demand for gasoline was up 3.6 percent for the week ending May 15 from the previous week, to 9.23 million barrels per day. But it remained below the 9.36 million barrels per day used the same week a year ago.

"Typically we see gasoline prices rise in spring," said Tom Knight, vice mpresident of supply and trading for Texarkana, Texas-based Truman Arnold Cos.

"The typical peak is late April to Memorial Day." In 25 of the past 26 years, there’s been a spring seasonal rise, he said.

"It’s a pretty reliable pattern." Fadel Gheit, oil analyst for Oppenheimer & Co., attributed much of the price increase to the traditional seasonal rise, helped along by traders hoping for a price increase because demand has risen only slightly so far.

"Refiners are also trying to catch up with the 30 percent increase in oil prices year-to-date," Gheit said.

Light, sweet crude oil closed down 99 cents at $61.05 a barrel Thursday on the New York Mercantile Exchange. That’s a little less than double the closing price of $33.87 on Dec. 19.

But Judy Dugan, researcher with Consumer Watchdog, said energy prices shouldn’t be going up, no matter if people are hopeful or if it’s a seasonal rise.

"It’s typical behavior in a completely atypical time," Dugan said. Oil prices "have nearly doubled. Nothing else in the economy or world has doubled." Consumption is down, she said, and even if Memorial Day travel creates a demand bump, it’s not enough to declare a recovery.

"It looks like we’re back on that same darn roller coaster," she said. "Its volatile unpredictability is in itself economically damaging." Gas prices typically start drifting lower sometime between Memorial Day and July 4, Flynn said.

Knight noted that there’s usually a 15 to 20 percent difference between the late spring peak and the midsummer low.

But economic factors also play into the current situation, he said. If there’s another big selloff in the stock market, energy prices probably will sink too, he said.

"So much of that is just contingent on the health of the economy," Knight added.

Kloza of the Oil Price Information Service said Arkansas tends to be about 10 cents below the national average and could still see an increase of 5 to 15 cents at the pumps in coming weeks.

"But I would be quite surprised and would suggest that we are witnessing madness if we see retail prices go anywhere near the highs of 2005, 2006, 2007 and 2008. I reserve the right to be wrong, of course."

Consumer Watchdog
Consumer Watchdoghttps://consumerwatchdog.org
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