AAA: Gasoline Prices Back Over $3, Records Loom

U.S. gasoline prices shot above $3.00 per gallon on Friday, within striking distance of record highs, as the creaking domestic refinery system strained to keep up with rising demand.

Average retail gasoline prices in the world's top consumer reached $3.012 a gallon, the AAA travel group said, up more than 30 cents since early April and near the record of $3.057 hit after hurricanes slammed Gulf Coast oil installations in 2005.

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In addition, gasoline demand is strong and showing no signs of slowing down as vacation season approaches, said Jason Schenker, economist for Wachovia Bank.

"We're in the first week of May — the driving season hasn't really begun. If we are nowhere near peak demand, we're nowhere near peak prices," said Schenker.

This year, companies struggling to retool refineries to meet new environmental standards, have faced longer, more extensive maintenance and serious outages, draining gasoline inventories ahead of peak summer demand.

"The problem this year is our continuing and increasing inability to refine enough gasoline to meet growing demand," said Geoff Sundstrom of AAA. "I think it is very possible that we will set a new record high price this month."

U.S gasoline stocks have dropped by 15 percent in three months, with refineries now running at around 88 percent of capacity, well below the 92 percent analysts say is normal this time of year to build up summer gasoline stocks.

"By this point in the season, nationwide gasoline inventories should be building, or at a minimum plateauing," Stephen Schork of the Schork Group said in a report.

New lower sulfur fuel specifications have forced refiners to increase the complexity of their equipment, making them more prone to outages.

"I think we could very likely see $3.25 as a national average and quite possibly spikes to $3.50," he said.

Despite high prices, Schenker said he thought motorists were unlikely to cancel planned vacations.


Government officials have expressed concern about summer gasoline prices, but added they had no plans to temporarily relax environmental regulations to ease supply problems.

But AAA said rising prices highlights the need for government to take a closer look at energy policies.

"Today, we have $3.00 a gallon gasoline for the third time in the last three years. Alarm bells ought to be going off in the offices of every member of Congress and among the presidential candidates," said Sundstrom.

"We simply have to increase our ability to refine gasoline, we need a much more aggressive conservation program, we need to improve our ability to store gasoline on an emergency basis."

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