Coming soon: $4-a-gallon gas in the U.S.

Discussion in 'Wall St. News' started by S2007S, Apr 23, 2007.

  1. S2007S


    Coming soon: $4-a-gallon gas in the U.S.
    By Joe Carroll Bloomberg News
    Published: April 23, 2007

    CHICAGO: Whether it is $50 to fill up a Prius or $130 for the Ford Expedition, $4-a-gallon gasoline is expected to become widespread in the United States.

    Fuel prices are rising at a pace not seen since Hurricanes Katrina and Rita knocked out a third of the U.S. oil refining industry in 2005. Gasoline consumption is climbing twice as fast as last year and will accelerate when summer travel begins late next month.

    "What we're surprised by is the increased demand," James Mulva, chief executive at ConocoPhillips, said recently. "Even though the price of gasoline is up, the demand is up."

    Rising population and U.S. economic growth are causing an increase in fuel purchases, according to AAA, the country's largest organization for motorists. Gasoline use is rising almost 5 percent above the five-year average.

    While Europeans have been paying in excess of $4 a gallon, or 78 euro cents a liter, for years, Americans are resigning themselves to higher prices, said David Pursell, a principal with Pickering Energy Partners, a consulting firm in Houston.
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    "Last year we had pump prices well over $3 for the summer and gasoline demand was up," Pursell said. "Would $4 gasoline cause demand contraction? I think it will, but I also thought $3 gasoline would."

    Gasoline inventories, measured by the days of demand they will cover, are at the lowest level in two decades for this time of year because of refinery fires, power failures and maintenance work oil companies failed to complete in 2006. No new U.S. refinery has been built in three decades, increasing the strain on existing plants.

    The U.S. nationwide average for gas is $2.87 a gallon, but it could rise to $4 especially if hurricanes threaten Gulf of Mexico refineries, said Peter Beutel, an analyst at Cameron Hanover in New Canaan, Connecticut.

    "Hurricanes are always the huge wild card," Beutel said. "We're all praying for a year like 2006 rather than 2005."

    Higher pump prices will make winners of refinery owners like ConocoPhillips, Valero Energy and Royal Dutch Shell.

    The increase in fuel costs threatens to quicken inflation and restrain U.S. consumer spending.