High Gas Prices May Not Deter Motorists

U.S. motorists may be fuming at the prospect of another summer of record gasoline prices, but analysts say there's plenty of room for more hikes before drivers hit the brakes on their traveling.

Retail gasoline prices are hurtling toward $3 a gallon on soaring crude oil prices, and costs could spike further as fuel suppliers prepare for the summer vacation season. But, with the U.S. economy faring well under the weight of high energy prices, analysts said Tuesday, the American love affair with the road will likely remain intact.

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"American drivers have the capacity to handle higher fuel costs," said Jason Schenker, an economist at Wachovia Bank in North Carolina. "With the economy in good shape, it is tough to believe people will stop driving because of an extra 50 or 75 cents per gallon."

Pump prices rose last week to an average $2.68 a gallon, the highest since the aftermath of last year's hurricanes, which knocked out a quarter of U.S. fuel production and brought gasoline briefly over $3 a gallon.

"We wouldn't be surprised to see nationwide gasoline prices averaging $3 a gallon again before the end of May," said Geoff Sundstrom, a spokesman for the AAA auto club. "And they could go even higher than that."

The main reason for high pump prices in the cost of crude, which struck an all-time high over $70 a barrel Tuesday as dealers focused on an escalating dispute between the United States and Iran over the OPEC member's nuclear program.

Iran is the world's fourth largest oil exporter, and crude traders are concerned the standoff could disrupt shipments.

Adding to pump prices is the phase out this year of the fuel additive MTBE, a chemical banned in several states for polluting groundwater, and replacing it with ethanol.

The U.S. government has said the transition could lead to price spikes and regional supply disruptions. Dallas briefly ran out of gasoline two weeks ago, after an oil company came up short of fuel during the switch.

But, historically, high gasoline prices have not kept drivers from logging in extra summer miles on the road.

Over the past four weeks, U.S. gasoline demand ran about 1.2 percent higher than a year ago, and the U.S. Energy Information Administration expects demand this summer to grow by 1.5 percent.

"Based on prior experience, consumers will travel by car this summer, as long as the economy remains strong," said AAA's Sundstrom. "There may be some moves away from big vehicles, which we've already seen to some degree, but gasoline costs won't curtail travel."

The question remains: Where is the ceiling for U.S. motorists? Is it $4 a gallon, or $5? Energy experts don't have the answers, but look to Europe, where prices are running about $6 a gallon, due mainly to higher taxes.

"You have some SUV dealerships that are doing pretty well in Germany and the low countries," said Wachovia's Schenker. "Just look at gasoline prices there."

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