March 21, 2013

Gas prices stay high, could hit $4 by May

U.S. output is solid, but global forces are influencing pump prices.

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NEW YORK -- The U.S. is increasing its oil production faster than ever and U.S. drivers are guzzling less gas. But you'd never know it from the price at the pump.

The national average is $3.69 per gallon and is expected to creep higher, perhaps near $4 by May.

For the year, prices are forecast to average $3.55 per gallon, slightly lower than last year's record of $3.63.

U.S. oil output rose 14 percent to 6.5 million barrels a day last year -- a record increase -- and topped 7 million barrels a day this year for the first time since 1992.

The nation is forecast to overtake Saudi Arabia by 2020 as the world's largest crude oil producer.

At the same time, U.S. gasoline demand has fallen to 8.7 million barrels a day, the lowest since 2001, as people drive less and switch to more efficient cars.

So is the high price of gasoline a signal that markets aren't working properly?

No. The laws of supply and demand are working, just not how American drivers want them to, experts say. Oil trades on a world market, and other players are becoming more important.

"You can definitely point to [growth] in India and China. The demand for fuel in these countries is increasing," said Doug Shupe, spokesman for AAA Texas/New Mexico.

As the developing economies of Asia and Latin America expand, their energy consumption rises, putting pressure on fuel supplies and prices elsewhere.

The U.S. still consumes more oil than any other country, but its imports are falling as domestic production rises.

Filling the gap as the single-biggest influence on global demand is China, which overtook the U.S. late last year as the world's largest oil importer.

China's consumption rose 28 percent in five years, to 10.2 million barrels a day last year, and it has become the world's biggest market for new vehicle sales.

"There's an 800-pound gorilla in the picture now -- the Chinese economy," said Patrick DeHaan, chief petroleum analyst at the price-tracking service

U.S. refiners are free to sell gasoline and diesel to the highest bidder around the world. In 2011, the U.S. became a net exporter of fuels for the first time in 60 years.

Mexico and Canada are the two biggest destinations for U.S. fuels, followed by Brazil and the Netherlands.

Two other factors are making gasoline expensive:

High oil prices. Brent crude, a benchmark used to set the price of oil for many U.S. refiners, is $108 per barrel. It hasn't been below $100 since July.

On average, the price of crude is responsible for two-thirds of the price of gasoline, according to the Energy Department.

Refinery shutdowns. Refineries temporarily close down in the winter, when driving declines, to perform maintenance.

That lowers gasoline inventories and sends prices higher nearly every year in the late winter and spring.

The spring spike happened earlier than ever this year, Shupe said, making it harder to tell how high gas prices might go this year. Traditionally prices have started rising in the spring as refineries shift to more expensive summer fuel blends and vacation travel begins.

"We don't know if we've seen the peak yet. It's still a couple of months before the summer driving season," Shupe said.

Still, he noted that gasoline prices are lower than a year ago.

According to AAA's weekly survey, the average price for a gallon of regular unleaded in Fort Worth-Arlington was $3.68 a gallon Thursday, compared with $3.81 a year ago.

A major reason cited for high gas prices the last two years -- fighting and political tension in the Middle East and North Africa -- doesn't apply this year.

Libyan production has returned after collapsing during the revolution two years ago.

And higher production from the U.S. and Saudi Arabia has made up for Iran's declining output under Western sanctions.

Rising gas prices can leave less money for drivers to spend on other things, but consumers are also saving on heating and electricity bills because of low natural gas prices.

And because gasoline prices have remained in a consistent range -- $3 to $4 since the end of 2010 -- economists say their effect on growth has been minimal.

Drivers in Connecticut, New York and Washington, D.C., are paying $3.92 or more per gallon on average, according to the Oil Price Information Service.

Drivers in Rocky Mountain states, where refineries can tap low-price crude from the U.S. and Canada, are paying far less.

Gas costs $3.42 or less in Wyoming, Utah and Montana.

Staff writer Jim Fuquay

contributed to this report.

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