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Gasoline prices on track for a record year of pain at the pump

September 12, 2011 |  1:34 pm

Gas prices are rising U.S. motorists are on pace to spend $491 billion for gasoline this year, the most ever.

Fuel prices have been rising again because of expensive crude oil and increased exports of gasoline and diesel to other countries. Although gasoline prices may decline for a few weeks after the switch to winter blends, which are less costly to produce than summer blends, our pump-price woes won't be going away, fuel experts said.

"The 30 days between now and mid-October will be the most hospitable days in the country for dropping prices," said Tom Kloza, chief oil analyst for the Oil Price Information Service in New Jersey. "But then the drumbeats will start about fears of a second Arab Spring. Demand outside of Europe and the U.S. continues to rise. By spring, Americans will be wrestling with $4 gasoline in a lot of markets."

At one point this year, retail gasoline prices were rising faster than they were even in 2008, when average prices hit record highs of $4.588 a gallon in California and $4.114 nationally.

The run-up in 2008 was followed by the biggest-ever fuel-price collapse. By the last week of December, 2008, motorists had blissfully returned to the much more affordable prices of early 2005, with a gallon of regular in California selling for an average of just $1.810. Nationwide, the average price was $1.613 a gallon.

As a result, the average price nationwide for all of 2008 ended up only about $3.25 a gallon, according to Kloza. But this year, no collapse in the market is anticipated. The average price for the year is running at about $3.66 a gallon, putting the country on track to pay a record $491 million for gasoline for all of 2011, Kloza projects.

The current average price for a gallon of regular gasoline in California is $3.946, according to the AAA Fuel Gauge Report. That's the highest ever for mid-September, after the end of the summer driving season. Nationally, the average is $3.649 a gallon, also a record for this time of year.

Carol Hill, a 25-year-old Los Angeles resident who waits tables in a restaurant on the Third Street Promenade in Santa Monica, said she was disgusted that she had to pay $3.95 a gallon to fill up her 10-year-old Honda Accord at a BP-Arco station on Lincoln Boulevard near Ocean Park Boulevard.

"The price of gasoline always goes up every year and never falls by as much. So, every year the price is higher. There's always some excuse someone has. All I know is that I'll be very happy the day someone hands me the keys to an electric car," Hill said.

Another reason 2011 is turning out so costly at the pump: U.S. gasoline supplies aren't growing even though U.S. demand is weak.

The country's consumption of gasoline is running 157,000 barrels a day below 2010 levels, according to the federal Energy Department. But gasoline inventories in the U.S. currently total 208.8 million barrels, 16.3 million barrels below the same period last year.

The amount of gasoline on hand in the U.S. isn't rising because an increasing amount of excess fuel here is going overseas.

In fact, in recent months the U.S. has become a net exporter of refined fuels, according to Energy Department statistics. That's a sea change from as recently as May, when U.S. imports of refined fuels still exceeded exports by 800,000 barrels a day. The latest data show daily exports topping imports by 467,000 barrels, with much of the outgoing fuel heading to Latin America.

"We do know that there have been more sales overseas this year compared to previous years. That has been most evident in the Midwest. When we look at the BP Whiting refinery in Indiana, which is one of the largest in the country, you see the output is strong, yet we are still seeing a lot of high prices in the markets this refinery is serving," said Gregg Laskoski, senior petroleum analyst for GasBuddy.com.

"It's troubling for consumers to try to reconcile the high price they see at the pump when the seemingly local refineries that served them in the past" are sending more of their products overseas, Laskoski added.

Consumers may also find it hard to reconcile the pump prices they're paying with relatively stable domestic crude-oil prices.

This is most evident in states like California, which does not have access to pipelines that could bring it some of the relatively plentiful West Texas Intermediate crude, the U.S. benchmark for oil trading on the New York Mercantile Exchange.

This year, there has been a huge spread between the U.S. benchmark and its European counterpart, Brent North Sea crude, which is traded on the ICE Futures Exchange in London. The price of Brent crude has been volatile this year because of the so-called Arab Spring, which has brought regime changes in Tunisia, Egypt and Libya as well as with unrest in Yemen and Syria.

Brent futures rose 26 cents to $113.03 a barrel Monday while the U.S. benchmark rose 80 cents to $88.04 a barrel. That narrowed slightly the price difference between the two benchmarks, which hit a record $27.23 a barrel on Sept. 6.

U.S. motorists suffer from the higher costs of imported crude oil, particularly in states like California. In 2000, for example, California produced about half of its oil needs and got about one-fourth from Alaska. That year, as a result, the state imported just 26% of its oil.

But in an expensive reversal of fortune, California now produces just 38% of the oil it consumes and imports 48% from sources tied to the much higher price of Brent North Sea Crude. Alaska oil meets only 14% of the state's needs -- and it's gotten much more expensive, trading at $24 a barrel higher than West Texas Intermediate.

The bottom line: U.S. motorists will not see much in the way of price relief in the coming months.

"We're not going to see a big drop in gasoline prices," said Phil Flynn, an analyst with PFGBest Research in Chicago. "We are probably at the low point for oil prices right now, and there is too much going on in the rest of the world, from higher demand and from reduced exports from places like Libya, for oil not to work its way back up in the coming weeks and months."

ALSO:

Gasoline prices edge higher in California

Rising fuel exports keep U.S. gasoline prices from falling

-- Ronald D. White

Photo: Pump prices will probably decline only slightly in the coming weeks.


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