Gas prices slip for first time in weeks

May 2, 2008 8:45:15 AM PDT
Retail gas prices fell slightly Friday - the first time in 18 days they haven't risen to a new record - and analysts say pump prices may be peaking for the year. Oil futures, meanwhile, rose sharply as Turkish airstrikes on Kurdish rebel bases in Iraq injected some supply concerns into the market, giving investors reason to shrug off a strengthening dollar.

The national average price of a gallon of regular gas fell 0.1 cent overnight to $3.622, according to a survey of gas stations by AAA and the Oil Price Information Service. That's the first time since April 14 that retail prices have fallen. Diesel prices fell 0.2 cent to a national average of $4.249 a gallon.

"It could go up just a little bit more," said Fred Rozell, retail pricing director at the Oil Price Information Service, in Wall, N.J., but, "I think it's running out of steam."

Prices could reach $3.70 a gallon, "at the most," Rozell said, but are highly unlikely to rise to $4 on a national basis. Still, motorists in parts of states such as California and Hawaii are paying $4 right now.

Soaring gas prices are cutting demand for gasoline, and analysts have long theorized that falling demand will eventually force prices lower. However, gas prices bucked those forecasts for most of the spring and followed oil's sharp gains.

On Friday, light, sweet crude for June delivery rose $3.25 to $115.77 a barrel on the New York Mercantile Exchange. Turkish warplanes bombed Kurdish rebel bases inside Iraq for three hours overnight, a rebel spokesman said Friday. When conflict breaks out in the Middle East, investors often buy on concerns that supplies will be disrupted.

The fresh supply concerns pulled the market's attention away from the dollar, which added to its gains against the euro Friday after the Labor Department said employers cut far fewer jobs in April than expected. Investors took that data to mean the Federal Reserve is less likely to cut interest rates further this year; falling rates tend to weaken the dollar.

A rising dollar undercuts the appeal of commodities such as oil as a hedge against inflation, and makes oil more expensive to investors overseas. The rising greenback helped pull oil prices back to nearly $110 a barrel on Thursday. Oil's climb to almost $120 on Monday from about $64 a year ago was largely due to a protracted decline by the dollar, analysts say.

However, oil's connection to the dollar can be broken when supply concerns flare up, as they did Friday.

"It's not a perfect relationship, and on any given day, oil will choose to go its own way," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill. Late last week, strikes by oil workers in Nigeria and Scotland stoked worries about supplies that drove oil prices higher. Both strikes were resolved this week.

Still, supply concerns tend to fade quickly. Analysts think the market's decision to shrug off Friday's stronger dollar will be short lived, particularly if the Fed holds interest rates steady, and the dollar continues to gain.

"It will be difficult to sustain (oil price) rallies in the face of any further strength in the dollar," Ritterbusch said. And that means retail gas prices will likely rise no higher than $3.65 to $3.70 a gallon, he said.

"I think that will be the high for the year," said Ritterbusch, who expects prices to fall back toward $3 a gallon over the summer.

In other Nymex trading Friday, June gasoline futures rose 7.52 cents to $2.9534 a gallon, and June heating oil futures rose 8.87 cents to $3.2064 a gallon. June natural gas futures rose 16.4 cents to $10.725 per 1,000 cubic feet.

In London, June Brent crude futures gained $3.50 to $114 a barrel on the ICE Futures exchange.


Associated Press writer C. Onur Ant in Istanbul, Turkey, contributed to this report.