Consumer Energy Report is now Energy Trends Insider -- Read More »

By Samuel R. Avro on Jan 6, 2009 with no responses

Get Ready For $2 Gas as Fuel Prices Continue to Rise

Tags:

The national average price for a gallon of gasoline posted their seventh consecutive gain on Tuesday, with signs increasing that some states in the continental U.S. states will soon be paying more than $2 a gallon.

The price for a gallon of regular unleaded gasoline rose to $1.688, up from $1.672 the day before, according to AAA. Prices have gained steadily in the past week, ever since it hit a recent low of $1.62 on Dec. 30.

“Markets don’t wait any more, that seems to be one of the lessons of 2008 volatility,” Tom Kloza, chief oil analyst at the Oil Price Information Service told Consumer Energy Report. “What might pass for an entire gradual Winter-to-Spring rally (increases of 55-57%) has already been condensed into two weeks,” he said.

If the recent spike in crude oil –up 25% in the last week– is any indication, chances are that the rally in gas prices is not over yet. Retail gasoline prices generally lag beind oil futures which traded above $50 a barrel today, up from below $32 a barrel on Dec. 19.

“We’ve probably seen the lowest gas prices we’ll see for the first 250 days of 2009,” said Kloza. “California is definitely going back north of $2.00,” he said.

A sharp rise in the gasoline wholesale market from less than 86 cents a gallon Dec. 5 to about $1.49 is what made the cost at the pump going up inevitable.

“If retail prices simply followed wholesale, we’d be looking at $1.75-$2.05 gallon retail prices soon,” Mr. Kloza said.

There are a number of factors playing a roll in the price swing.

Supplies have tightened, as refineries have cut the number of barrels of crude oil they processed weekly to 14.5 million during December, from 15.4 million, according to data from the Department of Energy.

Futures traders were also worried about potential fallout from the current tense situation in the Middle East. An Iranian military commander suggested withholding oil supplies from Israel’s allies, perhaps reminding traders of the Arab oil boycott during the Yom Kippur War in 1973.

However, a source inside OPEC told Reuters that an embargo is “very unlikely” to occur.

The ongoing disagreement between Russia and Ukraine, leading to Russia’s turning off its natural gas supply through the Ukrainian pipeline – which may hurt supplies across Europe, is also factoring in to the mood in the futures market.