Tuesday, May 8, 2001

Story last updated at 9:26 p.m. on Monday, May 7, 2001

Gas prices fuel talk of $3 a gallon Industry observers express doubt, see hope for relief

By Dave Carpenter Associated Press

Just what motorists didn't want to hear on the eve of summer vacations: Gasoline price shock is back.

With U.S. gas prices at record highs and motorists paying $2 a gallon in Chicago and California, talk from the pump to the Oval Office yesterday focused on whether prices could reach a once-unthinkable $3 a gallon this summer.

The odds appear to be against it -- one industry analyst said $3 gas remains as unlikely for the time being as snow in July. But the White House alluded to the possibility, saying President Bush will not act to stop any increase even if prices top that amount.

White House spokesman Ari Fleischer said Bush opposes price controls and has not supported calls to repeal or cut the 18.4 cents-a-gallon federal gas tax.

''The worst may already be over, because refiners are getting caught up'' with supplies, said Phil Flynn, senior energy analyst for Alaron Trading Corp. in Chicago. ''The bad news for consumers is we don't have one extra drop of gas to fall back on.

''If one more refinery goes out of service, it could have an impact on consumers of as much as 75 cents a gallon.''

Drivers in parts of the nation are being confronted by gas prices soaring to $2 and higher, bringing back unpleasant memories of last year's price increases.

The national average is now 23 cents higher than a year ago: $1.76 per gallon on Friday, up 5 percent from April 20 and the highest average ever recorded in the United States. (When adjusted for inflation, however, prices are still below those of 1980-81.)

Mark Rodekohr, an information center economist, said the demand for gasoline peaked more than a month early due to a combination of events including the cutback in crude oil production by the Organization of the Petroleum Exporting Countries.

The worst of the price hikes is just about over, Rodekohr said.

"You're probably seeing the peak of it now or within the next two weeks," he said. "Then you're going to see things back down."

The high prices are the result of "poor planning at an international level," Riverside resident Dess Oliver said as he filled up his Kawasaki motorcycle at a Post Street gas station.

Oliver said he's been driving his motorcycle instead of his pickup to work in Mayport two or three days a week to save on gas money. He blamed the Clinton administration for lack of foresight and was worried about what the higher prices will do to the cost of everyday goods.

"It takes fuel to produce everything," Oliver said, "that means they're going to cost more to buy."

U.S. gas prices reached an all-time high in the past two weeks, not adjusting for inflation, according to the Lundberg Survey of 8,000 service stations. Overall, the average price covering all grades of gasoline increased 8.58 cents to $1.76 a gallon as of Friday.

Factoring in inflation, that is a full dollar less than the average cost of gasoline in March 1981. It is also significantly less than motorists pay in much of the rest of the world.

That is small consolation to many, especially in the Midwest, which saw the highest price increase -- 13 cents -- and the West, where prices rose 8 percent since April 20. Those two regions fared worst in part because of the reformulated gasoline they rely on to limit pollution.

In Chicago, which has the nation's highest average price at $2.02 for a gallon of self-service regular, a fill-up that used to cost Erika Trujillo $20 for her Nissan Stanza now runs about $30.

''This is crazy. $2.34 for a gallon of gas?'' the 19-year-old cashier said at a pump in downtown Chicago. ''We can't even afford to pump gas anymore. We're going to have to get on our bicycles.''

Unlike last year, the crude oil supplies that are the source of U.S. gasoline are abundant. But the market remains jittery after fires at refineries in Los Angeles and Wood River, Ill., sent gasoline futures to a 17-year high last week on the New York Mercantile Exchange.

Adam Sieminski, an analyst for Deutsche Banc Alex Brown, dismissed the $3-a-gallon talk as irresponsible hype that could spook motorists into filling cans of gas and stocking up.

''It's not going to be that bad,'' he said. ''For God's sake, don't be putting gasoline in your basement or your garage because that's not a good idea -- your house could blow up.''

If crude oil prices skyrocket and a refinery accident or a pipeline outage disrupts supplies, he said, premium gasoline could go higher than $2 and perhaps even touch $3 at a station or two.

But under current circumstances, ''it's highly unlikely to hit $3. It's possible, but it's possible that it could snow in July, too,'' he said.

http://www.jacksonville.com/tu-online/stories/050801/bus_6114277.html

-- Martin Thompson (mthom1927@aol.com), May 08, 2001