Tags: High | Gasoline | Prices | US

High Gasoline Prices Show No Signs of Letting Up

Monday, 19 Mar 2012 02:11 PM

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Gasoline prices jumped 6 percent in February, months before they're due to embark on seasonal price climbs, and are poised to rise even higher as refineries in the northeast U.S. shut down.

Oil prices are soaring due to tensions with Iran and on firming demand in countries like China and India.

When oil prices rise, refineries have to pay more for crude to produce gasoline, passing the cost on the customers in the process.

When those customers balk and buy less fuel, the refinery is still stuck with pricey crude and less demand and therefore, shuts down to avoid losing money.
Sunoco is expected to close a large refinery in July, which will shed another 335,000 barrels per day in production capacity off the market, the Wall Street Journal reports.

"There's now going to be a question if we can get enough gasoline into the East Coast for summer," says David Greely, an energy analyst at Goldman Sachs Group, the Journal adds.

There are refineries in other parts of the U.S. and even abroad that could make up for the lost supply in the northeast, but the problem, experts say, is tweaking supply routes.

"The global refining system is ample enough to replace those lost barrels. The problem is they're not in the right place," says Ed Morse, global head of commodities research at Citigroup, adding gasoline prices could push as high as $5 a gallon in parts of the U.S.

Gasoline prices are averaging around $3.84 a gallon nationwide, according to AAA Daily Fuel Gauge Report.

The U.S. the consumer price index rose 0.4 percent in February from January, the largest increase in 10 months mainly due to more expensive gasoline, the Labor Department reports.

The government's core inflation rate, which is stripped of volatile food and energy prices, rose only 0.1 percent.

"Consumer purchasing power, at least for the next few months, is going to remain pressured by rising gasoline prices," says Sam Bullard, a senior economist at Well Fargo Securities in Charlotte, North Carolina, according to Reuters, adding inflationary pressures will eventually ease.

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