Why gas prices are hitting new highs
WASHINGTON — The average price of a gallon of regular gasoline has jumped 45 cents in the past 31 days, according to AAA, the fastest run-up since 2005.
Retail gasoline prices have climbed for 33 days in a row. A month ago, a gallon of regular gasoline cost $3.30; on Tuesday it stood at $3.75 nationwide.
Gasoline prices have risen to within a nickel of $4 a gallon in the District of Columbia as pump prices nationwide have been marching higher — the result of refinery closures and maintenance, lower oil production by Saudi Arabia, market anxiety about tensions in Iran and Iraq, and guarded optimism about the prospects for economic recovery in the United States, Europe and China.
The prices in the District of Columbia are among the highest in the country, outstripped only by New York, Connecticut, California and Hawaii.
“This is the most expensive we’ve seen gasoline in the dead of winter,” which is usually a time of relatively low consumption, said John Townsend, a spokesman for AAA mid-Atlantic. Noting that the increase comes just as the payroll tax cut has expired, Townsend said that “this is a double whammy for many consumers, especially on the East Coast, because many people there use home heating oil ... People got that shock to the system and now a shock at the gas pumps.”
The price increases have been a rude reminder that even though the United States’ reliance on imported oil is less than it has in nearly two decades, prices at service stations are still tied to global prices and subject to global market trends, as well as to regional refinery constraints.
Analysts differed widely on the causes of the increase.
The price of crude oil, which makes up about two-thirds of the price of gasoline, remains extremely high by historical standards. The price of a barrel of the benchmark West Texas Intermediate grade of crude oil for March delivery climbed 80 cents to settle at $96.66 a barrel on the New York Mercantile Exchange. In London markets, the price is about $20 a barrel higher.
One factor is lower crude oil output from the Organization of the Petroleum Exporting Countries. Saudi Arabia is producing about 700,000 fewer barrels a day than a year ago, according to the International Energy Agency.
Yet global inventories of oil are ample, and the IEA has forecast that increases in oil supplies around the world — including the United States, Kazakhstan, southern Iraq and Africa — will outstrip increases in oil demand.
“Oil prices are inflated by concern about potential oil supply disruption. All I have to do is watch TV for five minutes,” said Fadel Gheit, an oil analyst with Oppenheimer. He pointed to continuing tension between the United States, Israel and Iran over Tehran’s nuclear program; the ongoing civil war in Syria; and factional violence in such oil-exporting nations as Libya and Iraq.
Greg Priddy, an oil analyst with the Eurasia Group, said that prices appeared to be higher than supply-and-demand fundamentals would justify. “There is a growing tension between market fundamentals” and the risks that traders and investors are willing to take, he said.
“The markets are breathing a sigh of relief about tail risks like eurozone, the fiscal cliff and sequestration,” he said, referring to the recent U.S. budget brinkmanship. “There has also been some positive economic data in places like China.”
But some analysts also pointed to refinery issues. Several refineries have been shut down for routine maintenance, and in the eastern United States, several refineries simply went out of business in the past year.
“Atlantic Basin capacity closures have improved refining fundamentals,” the nation’s biggest refiner, Valero, said in a slide presentation at a Credit Suisse conference this month. It estimated that nearly 1 million barrels a day of refinery capacity has been closed on the East Coast or in the U.S. Virgin Islands in the past two years, which Valero said allowed it to increase profit margins.