No Let-Up in Red-Hot Summer Gasoline Prices May 24, 2001 1:49 pm EST

By Richard Valdmanis NEW YORK (Reuters) - Red hot U.S. gasoline prices show no sign of cooling as peak driving demand gears up for the Memorial Day weekend -- a blow to drivers hoping to avoid a repeat of last year's summertime sticker shock.

Average retail gasoline prices are zipping along near $1.70 a gallon -- within 2 cents of the all-time high -- and could move even higher after tight supply forced a 17 percent spike in wholesale prices in barely a week.

"We're operating on the razor's edge," said Geoff Sundstrom, spokesman for the American Automobile Association. "We're already seeing gasoline prices we've never seen before, and any number of small events could worsen that."

After a decade of economic growth founded on low energy costs, soaring pump prices, as well as electricity shortages on the West Coast, have proved a shock for consumers and are triggering criticism of the lack of near-term fixes in the Bush Administration's new energy plan.

While $3 gasoline at the pumps remains a long-shot this season, an expected decline in imports due to strong demand in Europe could spur further price hikes, particularly if a rebound in the U.S. economy keeps driving demand strong.

TWIN PEAKS

After falling briefly from a peak at the end of April, tight supplies have once again sent wholesale gasoline prices shooting higher, particularly for cleaner-burning reformulated gasoline required at a third of the nation's pumps.

"There is this feeling that we may have tightness on reformulated gasoline once summer driving season comes into full swing," said one gasoline dealer.

Gasoline futures on the New York Mercantile Exchange, which dealers use as a benchmark for wholesale pricing, rose to an all-time high of nearly $1.17 a gallon on May 24 -- reflecting a 17 percent jump since May 16.

The spike, which will take a couple of weeks to reach the pumps, came as industry reports showed supplies of reformulated gasoline nearly 8 percent below year-ago levels.

After years of underinvestment due to lean returns, the U.S. refining industry is reaping record profits in its effort to make up deficits of "green" -- environmentally friendly -- gasolines in the summer, and of heating fuels in the winter.

Gasoline suppliers say reformulated gasoline, used in urban areas of the Northeast, Midwest, and West Coast to combat smog, is especially difficult to produce due to patents held by Unocal Corp. and due to a shortage of blendable fuel used in making it.

Exxon Mobil has filed a request with the Federal Trade Commission for an investigation of whether Unocal's patents comprise a monopoly, after the behemoth oil company lost battles in court this winter.

GASOLINE TIDE SHIFTS

While the strained U.S. refining system has boosted its production to breakneck rates in order to prepare for summer, overseas imports -- a key supplement -- are showing signs of trailing off just as peak demand kicks in.

For roughly two weeks gasoline suppliers have found it more profitable to sell cargoes in Europe than in the United States, meaning fewer of the foreign cargoes that helped national supplies grow this spring are being routed to U.S. ports.

The shift in the gasoline tide undermines projections that continued strong imports and strong refining output would cut into the high gasoline prices -- a view held by industry watchers since early May.

"It couldn't last forever," said a shipping analyst for Dain Rauscher in Houston. "These things are a natural cyclicality. The imports will return when our prices exceed theirs again."

Further upward price pressure could come from expectations that U.S. motorists -- who still pay far less at the pump than more heavily-taxed European counterparts -- will drive at least as much as last year to get to vacation destinations, despite a sluggish economy.

The AAA said it expects record road travel on Memorial Day weekend, the traditional start of summer driving season, and the Travel Industry Association of America said summer-long travel will likely exceed last year's levels.

A survey by Progressive Insurance showed that 66 percent of American summer travelers will use cars instead of airplanes to reach their destinations, even though most said they were worried about the economic slowdown and high energy prices.

http://www.iwon.com/home/news/news_article/0,11746,129579|top|05-24-2001::13:52|reuters,00.html

-- Martin Thompson (mthom1927@aol.com), May 24, 2001

Answers

In more than 20 years this is the first time I've seen predictions of a letting up of price rises after Memorial Day, the beginning of the summer driving season. It makes no sense. It is always assumed to be increases from Memorial Day on, for the rest of the summer.

-- Uncle Fred (dogboy@bigfoot.com), May 24, 2001.

From what I can see, only a few are predicting decreases. Most, like the above article states, are warning of increases, much of that having to do with all the re-formulated gasoline that is required by the various environmental laws of several states.

-- Case (case@webtown.com), May 24, 2001.