Retail gas hits record $3.50 a gallon

April 21, 2008 12:35:51 PM PDT
Rising gasoline prices tightened the squeeze on drivers Monday, jumping to an average $3.50 a gallon at filling stations across the country. Crude oil, meanwhile, set a new record of its own, spiking after an attack on a Japanese oil tanker in the Middle East to close above $117 a barrel for the first time.

"It's killing us," said Jean Beuns, a cab driver in New York who estimated he is making $125 to $150 a month less than in the fall because of costlier fuel. "And it was so quick. Every day you see the price go up 5, 6, 10 cents more."

Diesel prices at the pump also struck a record high, of $4.20 a gallon, according to AAA and the Oil Price Information Service, putting pressure on truckers and other shippers who rely on the fuel to transport goods to market.

Prices are expected to keep climbing as they trace the path of crude, which has surged to new records for six trading sessions in a row. Oil prices are rising along with a host of commodities, from corn and wheat to gold and platinum, that are enticing speculators seeking hedges against a weakening dollar.

Light, sweet crude for May delivery rose to a record $117.76 a barrel on the New York Mercantile Exchange before settling at $117.48, up 79 cents from Friday's close.

Nationally, retail gas prices jumped more than a nickel over the weekend, and are up 23 percent from a year earlier. Drivers are paying the lowest prices in New Jersey and the most in California, where a gallon of regular is now averaging $3.86 for a gallon.

For motorists, the worst may be still to come. That is because the summer driving season, when demand is at its greatest, has yet to begin.

"People want to drive, they need to drive, they have to go to their job," said Samer Katib, manager of a Marathon station on Chicago's South Side. "But people who would drive around or go places for fun, they're not doing that any more. It's just go to your work and go home."

The Energy Department predicted earlier this month that monthly average gasoline price will peak at over $3.60 per gallon in June and could possibly reach the $4 threshold.

"It's uncharted territory," said Tom Kloza of the Oil Price Information Service, Wall, N.J. "I don't think we're done, but I have to believe we're in the eighth or ninth inning" of price increases.

The higher prices are already prompting some drivers to cut back.

In New York, Elvis Ragbir and Anthony Winckler said they are driving less and taking the subway more.

"I'm spending all my gas money on MetroCards," Winckler said in the waiting room of a vehicle inspection station in Manhattan. Ragbir, a delivery truck driver, said he is looking to trade in his Lexus LS 400 for a smaller car.

In downtown Chicago, Sharon Cooper spent $52 to fill up three-quarters of the tank in her Toyota Highlander SUV. She said she tries not to let the prices get to her, although she also is changing her habits: "I am buying a bike to commute to work this summer," she said.

Energy Department data show gasoline consumption fell more than 1 percent during the four weeks ended April 11, compared with the same period a year ago.

That change in consumption patterns, while not drastic, is significant, said Mariano Gurfinkel, project manager at the Center for Energy Economics at the University of Texas at Austin, who expects per-capita demand to drop further this summer if gas prices rise or even remain at the current levels.

Americans will continue to drive, but some may change a summer vacation destination as gasoline costs continue to make a bigger dent in their pocketbooks, Gurfinkel said.

Crude prices came under increased pressure Monday after the 150,000-ton tanker Takayama was struck off the coast of Yemen as it headed for Saudi Arabia, its Japanese operator, Nippon Yusen K.K., said in a statement posted on its Web site. None of the ship's 23 crew members was injured, but several hundreds of gallons of fuel leaked before a 1-inch hole in the tanker's stern was repaired, the company said.

Kyodo News agency reported that the Japanese tanker was fired on by a rocket launcher from a small boat.

"There's clearly some geopolitical tension in the market," said Mark Pervan, senior commodity strategist at the ANZ Bank in Melbourne, Australia. "This will die down, but the market is pretty jittery at the moment."

Adding to the worries were claims Monday from the main militant group in Nigeria's restive south that it had launched two more attacks on oil pipelines in the region. Attacks since early 2006 on Nigerian oil infrastructure by the militant group have cut nearly one-quarter of the country's normal petroleum output, boosting oil prices. Nigeria is a major supplier to the U.S.

Comments over the weekend by an OPEC official that the group was not likely to increase production also supported prices Monday. Abdalla Salem el-Badri, secretary-general of the Organization of Petroleum Exporting Countries, said Sunday that oil prices would likely go higher and that the group was ready to raise production if the price pressure was due to a shortage of supply - something he doubted.

"Oil prices, there is a common understanding that has nothing to do with supply and demand," el-Badri said on the sidelines of an energy conference in Rome.

In other Nymex trading, heating oil futures rose 1.9 cents to settle at $3.3114 a gallon while gasoline futures fell about a penny to settle at $2.9791 a gallon. Natural gas futures jumped 14.6 cents to settle at $10.733 per 1,000 cubic feet.


Associated Press Writers Dave Carpenter in Chicago, Dan Caterinicchia in Washington, Pablo Gorondi in Budapest and Thomas Hogue in Bangkok, Thailand, contributed to this report.