Originally created 04/12/06

Vacation drives won't come cheap this summer



WASHINGTON - Pump prices for gasoline are rising with the temperature, and likely will average about a 25 cents a gallon more than last summer, but not enough to keep people home.

The Energy Department's new "seasonal outlook," released Tuesday, projects that the price for regular grade gasoline will average $2.62 a gallon, barring any unexpected supply disruptions. Gasoline prices have soared since February.

Last week motorists paid on average $2.68 a gallon nationwide for regular, an 18-cent increase in two weeks and 40 cents higher than the national average a year ago.

Growing demand, high crude oil costs, requirements for low-sulfur gasoline and greater demand for corn-based ethanol as an additive all "are expected to keep consumer prices for motor fuels... high in 2006," said the report by the department's Energy Information Administration.

The high prices are not expected to dampen demand during the April-September heavy driving season. Motorists are expected to use an average 9.4 million barrels of gasoline a day, or 1.5 percent more than last summer, according to the Energy Department agency.

The agency cautioned that prices can vary by 27 cents to 50 cents a gallon between different regions of the country and that prices could spike higher if there are unexpected supply disruptions caused by the weather or refinery problems.

Some analysts said gasoline could return to $3 a gallon or more if crude oil prices increase sharply or there is concern about hurricane damage to producers in the Gulf of Mexico.

The markets are likely to be more jittery about the weather this summer in light of the widespread disruption of Gulf oil and gasoline production caused by hurricanes Katrina and Rita last year.

Gasoline spiked to a national average of $3.07 a gallon - and considerably higher in some areas - after last year's hurricanes.

"News of any developing hurricanes and tropical storms with a potential to cause significant new outages could add to (price) volatility... in the latter part of the summer," said report said.

Prices at the pump have been climbing since February when the national average for the month was $2.25 a gallon.

High crude oil costs are partly to blame. Light, sweet crude for May delivery rose 61 cents to $69.35 a barrel on the New York Mercantile Exchange by midday Tuesday in Europe. The contract rose $1.35 to settle at $68.74 on Monday.

The Energy Department's report said that crude oil is expected to remain high, averaging $65 a barrel for the year. But it said gasoline costs are expected to outstrip crude prices as demand for gasoline remains high and refiners assume additional costs because of new low-sulfur requirements and the phaseout of a clean-air additive known as MTBE.

Three of the biggest refiners - Valero Energy Corp., Exxon Mobil Corp. and Shell Oil Co. - said they will stop putting the additive into gasoline beginning May 5. Valero estimates that will shrink the nation's gasoline supply by 145,000 barrels a day.

At a congressional hearing last month, Guy Caruso, head of the Energy Information Administration, said about 130,000 barrels of ethanol, a substitute additive for MTBE, will be needed. That's about 50 percent of current output.

The demand for more ethanol has caused the price of the corn-based additive to surge to about $2.75 a gallon, an increase of about 50 cents a gallon.

The additives account for about 10 percent of gasoline volume in areas where they are used, so a 50-cent increase in ethanol translates into about a nickel a gallon boost in the fuel's cost to motorists.

Bob Dinneen, president of the Renewable Fuels Association, a trade group that represents the ethanol industry, told a Senate hearing last month that the industry will be able to meet ethanol demand even as refiners move away from using the additive.

He said the industry is filling East Coast ethanol storage tanks and contracting barges that can ship ethanol down the Mississippi River to Gulf Coast refiners and up the Atlantic seaboard.

"The market is responding," he said. But he also said it was the oil industry's decision to stop using MTBE this soon.

Last year, Congress as part of broad energy legislation lifted the requirement that refiners include 2 percent oxygenate - ethanol - in gasoline sold in areas having clean air problems, clearing the way for refiners to stop using the additive.

On the Net:

Energy Information Administration: www.eia.doe.gov