Gas Prices Hit Record High With More Room to Run

By Jason Simpkins
Associate Editor

The price of gasoline across the country hit a record high yesterday (Tuesday), and some analysts believe motorists could be paying upwards of $3.75 a gallon in the near future.

Prices at the pump rose to a record national average of $3.2272 a gallon yesterday, topping the previous record of $3.2265 set last May, the Oil Price Information Service and AAA reported. The price of gas has risen 26 cents in the last month, tracking the meteoric rise of oil prices, which have stormed to record highs as well.

Several regions of the country are already seeing gas prices over $4.00 a gallon, leading many analysts to predict the national average will peak between $3.50 and $3.75.

The price of gas usually rises this time of year as refineries reduce output for routine maintenance and switch from winter to summer blends just in time for the busier driving seasons. However, experts say the spike will be more pronounced this year because of oil's soaring price tag and attempts by refiners to increase profit margins.

Crude delivery for April rose as high as $1.82 (1.7%) to $109.72 a barrel in electronic trading on the New York Mercantile Exchange yesterday, the fifth record high hit in as many trading days. Oil, which accounts for 80% of the price of gasoline, is up 13% this year. Oil has surged 80% in the past year, significantly outperforming all three major U.S. stock indices.

While oil prices erupted over the past year, gas prices remained relatively stagnant, sharply reducing refiners' profit margins. John Kilduff, an energy analyst at MF Global Ltd. (MF), told CNN that refiners are making about $6 off of every barrel of oil they turn into gasoline, as opposed to $38 a barrel last spring. Kilduff attributed a 5% drop in refining capacity to the unimpressive profits many refiners are seeing for gasoline.

"There's no market incentive to rush your unit back into production," he said, "[Gas prices] can't go any lower in relation to crude."

While Kilduff and others see gas building on its record, they also see the price peaking relatively quickly in April or May, and adjusting for underlying fundamentals that don't support such high prices.

A report from the International Energy Agency due at 2:30 pm ET today (Wednesday) is expected to show an increase of about 1.9 million barrels in the week to March 7, Thomson Financial News reported.

The IEA announced a reduction in its forecast for 2008 global oil demand for a second straight month yesterday. The IEA cut its 2008 forecast by 80,000 barrels a day to 87.54 million barrels
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