Gas price hikes on the way

Associated Press

NEW YORK — While an ample supply of gasoline has kept prices low all winter, filling up the tank could become more expensive before too long.

The anticipated springtime increase should be less extreme at its peak than in recent years, though, because a gallon of gas costs 25 percent less today than it did a year ago.

Analysts say prices could begin to rise as early as mid-March, when refiners shift production from winter- to summer-grade fuel in preparation for the country’s busiest driving season.

For refiners, the switch to cleaner-burning gas requires shutting down equipment, scrubbing it clean and starting all over again — a process that causes supplies to contract and prices to move higher, if only temporarily.

Refiners with excess winter-grade gas can blend in chemicals needed to meet summer air quality specifications, dump the product on the market at cut-rate prices or keep it in storage until next year. No matter which route they choose, the excess inventory will quickly disappear.

Once the switch is complete, the next phase in America’s cyclical gas markets — regional price spikes — should not be far behind, analysts said. Spikes have been routine in recent years in California, the Midwest and parts of the Northeast as buyers bid up prices on the wholesale markets, fearing shortages of a special blend of federally mandated fuel, known as reformulated gasoline, which produces less smog.

With these market forces just around the corner, many analysts believe petroleum markets will exhibit a familiar volatility in the weeks and months ahead despite 6 percent more gasoline inventory than last year and weaker consumer demand.

"Once we get to March, throw out all the fundamentals," said Peter Beutel, publisher of Cameron Hanover’s daily energy newsletter. Beutel said he expects unleaded gasoline prices to rise as much as 15 cents a gallon between March 15 and Memorial Day, usually a busy travel day.

Tom Kloza, director of Oil Price Information Service, a Lakewood, N.J., publisher of industry data, believes the speculative rise "will be less dramatic than the price spikes of the last couple of years."

Last year, for example, the average price of regular unleaded was $1.38 a gallon on March 19 and rose all the way to $1.65 by Memorial Day. The pattern was similar in 2001.

Today, a gallon of regular unleaded costs about $1.10.

Gas prices surged briefly after Sept. 11, then fell steadily before stabilizing in November. Some analysts believe it is too soon to predict what will happen next.

Ed Silliere, vice president of risk management at Energy Merchant LLC in New York, said many refiners are preparing to produce summer-grade gasoline earlier than usual in an effort to grab market share from their competitors when the warmer weather arrives. That could put the industry in a better position to meet peak demand this summer, Silliere said.