Friday, April 4, 2008

Gasoline prices rise to a record $3.30 and head higher

By John Wilen, AP Business Writer
NEW YORK — Retail gasoline prices surged to a record above $3.30 a gallon Friday and appear poised to rise further in coming weeks as gasoline supplies tighten.
Oil prices, meanwhile, supported the gas price rally, jumping more than $2 a barrel after a dismal employment report sent the dollar lower.

At the pump, gas prices rose 1.4 cents overnight to a national average of $3.303 a gallon, according to AAA and the Oil Price Information Service. That's the latest in a series of records, and about 60 cents higher than a year ago.

While oil's surge above $100 a barrel the last month has boosted gasoline prices so far this year, analysts now expect gas prices to continue rising regardless of what direction crude takes. The Energy Department expects prices to peak near $3.50 a gallon later in the spring, but many analysts predict the spike could approach $4.

That's because gasoline supplies are falling, in part because producers are cutting back production due to the high cost of crude — the more expensive crude is, the more refiners have to pay and the lower their profit.

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They're also in the process of switching over from producing winter grades of gasoline to the less polluting but more expensive grade of fuel they're required to sell in the summer.

"That cuts back on some of the supply and helps to pump up the price," says Mike Pina, a spokesman for AAA.

The margin between the price refiners pay for crude and what they get for selling the products they make from it is around $11 to $12 a barrel right now, according to the Oil Price Information Service. However, that margin has slipped into negative territory some days and is well below margins of $37 a barrel refiners earned last spring.

On Thursday, ConocoPhillips said high crude prices were significantly hurting refining margins. Last week, Valero Energy cut output at its Corpus Christi, Texas, refinery due to high supplies and falling demand. Analysts believe many other refiners are adopting similar tactics.

Friday's price spike is a sign those cutbacks may be working, giving everyone in the supply chain, from refiners to retailers, the ability to raise prices to try to boost margins. Many gas retailers say they make more on the sale of coffee and sundries in their convenience stores than from selling gasoline.

Of course, that's not good news for consumers also paying higher food prices and watching their home values slide. Food prices are high due in part to diesel prices, which held steady overnight at a national average $4.023 a gallon, near recent records.

High oil prices are also hurting airlines. Aloha Airlines shut down and ATA Airlines filed for bankruptcy protection in recent weeks, citing high fuel prices as a cause of their failures.

In futures trading, meanwhile, oil futures rose Friday after the Labor Department said employers cut payrolls by 80,000 jobs last month, much more than analysts had expected. The unemployment rate rose to 5.1%. That news sent the dollar lower and pushed light, sweet crude for May delivery up $2.40 to settle at $106.23 a barrel on the New York Mercantile Exchange. Gasoline futures for May delivery rose 3.24 cents to settle at $2.7567 a gallon.

Gasoline futures were also boosted Friday by a fire that shut down part of a Los Angeles refinery.

Much of crude's price moves in recent months have been tied to the dollar. Many investors view crude, gold and other hard commodities as hedges against a falling dollar and rising prices. Also, crude becomes less expensive for overseas investors when the dollar is falling.

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