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Higher Gas Prices Are on the Way

By Jonathan Fahey

NEW YORK -- Drivers, here's the bad news: You'll be paying more for gasoline in the coming weeks.

The good news: You'll likely pay less than last year. Or the year before, or the year before that.

The price of gasoline held steady into early February, but an increase is almost inevitable at this time of year. Pump prices have gone up an average 31 cents per gallon in February over the past three years. And although this year's rise might not reach the heights of years past, there are reasons for drivers in some regions -- like the Northeast -- to worry about a painful spike.

"We're going to get increases, and they are going to be noticeable," says Tom Kloza, chief oil analyst at Gasbuddy.com and the Oil Price Information Service. "We're going to get that pop relatively soon."

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The price of crude oil has risen 8% over the past month, to $100 per barrel. And analysts expect fuel supplies to begin to decline, as refineries dial back production to perform maintenance and make the switch to summer fuels.

Gasoline prices are already creeping higher. The nationwide average price has risen for seven days in a row to $3.34 per gallon, the highest level since October, according to AAA, OPIS and Wright Express. California, Connecticut and New York drivers are paying an average of $3.65 or more, the most in the lower 48 states. Montana and South Carolina drivers are paying $3.10 or less.

But the nationwide average is not expected to quite reach its high point of last year, $3.79 per gallon, set on Feb. 27 -- never mind the highs of $3.94 in 2012 and $3.98 in 2011. AAA predicts a peak of between $3.55 and $3.75 per gallon.

Gasoline prices are 8% lower than last year at this time, even though crude oil prices are about the same, in part because gasoline supplies are plentiful. Refiners have kept operations humming to meet increased demand for heating oil during the frigid winter, and have produced more gasoline as a result. But the stormy weather has left cars buried under snow, where they don't use much gasoline.

Now, however, with the end of the winter in sight, refinery output is expected to slow down as refiners conduct typical seasonal maintenance. Even refiners that are up and running sometimes reduce production at this time of year. They'll soon switch to making more expensive summer gasoline that is formulated to meet clean air rules, and they don't want to be stuck with unsold winter gas.

That reduced production depletes supplies and causes gas prices to rise as the U.S. driving season approaches.

There are a few twists this year that could send prices higher than forecasters expect, however, especially in certain markets.

Three crucial refineries that serve the Northeast have maintenance already under way or scheduled soon, according to Kloza. Delta Air Lines' facility in Trainer, Pa., is finishing up maintenance and is expected to be back on line in a couple of weeks, according to analysts. The Philadelphia Energy Solutions refinery in Philadelphia is also undergoing maintenance, and the giant Irving refinery in New Brunswick, Canada, is expected to go off-line at the end of February, analysts say.

If maintenance goes as planned and the weather in the Northeast stays nasty -- suppressing demand for gasoline -- prices shouldn't spike too dramatically. But if something goes wrong at a refinery and people start hopping in the car again, prices could soar in New York and New England.

Kloza says California and the Pacific Northwest are also at risk for higher prices because both regions rely so heavily on a relatively small number of refineries.

Low supplies will be more difficult to replace than in the past, because the U.S. is receiving fewer imports of gasoline and other fuels from abroad, while exporting more. Refiners often find it cheaper to send any excess fuel they produce abroad than to send it to other U.S. locations, because of rules that require domestic shipments to use a small fleet of U.S. boats, which charge higher rates.

"The market may not take off, but there's plenty of dry tinder, and I think it will," Kloza says. "It's going to get pretty interesting here over the next 45 days."

Copyright 2014 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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