Taxes help rev up gas prices

Get used to paying about $3 a gallon or so for gasoline around Snohomish County before the autumn rains return.

The U.S. Energy Department’s seasonal supply outlook, released Tuesday, estimates that regular unleaded gasoline will average $2.62 a gallon nationwide this summer – barring any unexpected supply disruptions that could raise the price even higher.

Plus, July will bring another 3-cent hike in the state gasoline tax, currently at 31 cents a gallon, as part of the transportation funding package passed by the Legislature in 2005.

Guy Caruso, head of the Energy Department’s statistical service, said prices are likely to increase another 10 to 15 cents a gallon in the coming weeks, probably peaking around Memorial Day and the start of the summer driving season.

“They’re certainly indicating that prices will continue to go up until at least June,” said Janet Ray, a spokeswoman at AAA’s regional office in Bellevue.

According to AAA’s daily gasoline price tracker, the average price for a gallon of unleaded fuel in the Seattle-Bellevue-Everett region was $2.74 on Tuesday. That’s nearly 30 cents higher than a year ago.

Prices of $3 a gallon already are posted in downtown Seattle. Most stations around central Snohomish County were charging $2.70 to $2.80 a gallon on Tuesday.

Even so, the rising prices are not expected to deter many people from hitting the road this summer. In fact, the Energy Department’s Energy Information Administration predicts that motorists will to use 1.5 percent more gas than last summer.

AAA also expects as much driving as ever this summer.

“While certainly there are some individuals making changes in their travel plans because of the gas prices, we are anticipating as strong a travel season this year as last year,” Ray said.

The reason is that the economy is generally doing better, giving people the confidence that they can cope with higher gasoline costs.

Caruso said high crude oil costs are the main reason for the gasoline price increases nationally. U.S. crude futures closed at $68.98 a barrel on Tuesday in New York, about $2 short of the record high. Crude makes up nearly 60 percent of the cost of a gallon of fuel, according to the Energy Department.

Along with strong oil demand from the U.S. and China, traders are concerned that instability in Iraq, Nigeria and Iran could disrupt world supplies. With those factors, the Energy Department said the average price of crude oil is expected to remain about $65 a barrel for the remainder of the year.

“Really, the two biggest factors that go into the market, from our perspective, are the price of crude oil, which just keeps inching up … and, in Washington, the second biggest factor is taxes,” said Frank Holmes, Northwest manager for the Western State Petroleum Association in Olympia.

Under the Legislature’s 2005 gas tax package, which voters upheld in the fall, the state tax on gasoline will rise another 2 cents a gallon in 2007.

The refinery shift away from the additive MTBE also is putting pressure on supplies of corn-based ethanol, adding “a few pennies” of the cost to motorists, Caruso said. Refiners have said they will stop using MTBE May 5, and many will instead substitute corn-based ethanol.

Gasoline in Washington state hasn’t contained MTBE for several years, according to the Western States Petroleum Association. The price pressures caused by the switch elsewhere and by short supplies of ethanol will have a ripple effect here, however.

An industry analyst recently told an Oil Price Information Service meeting that ethanol shortages could last until mid-2007.

Caruso acknowledged that the federal government’s price projections assume smooth sailing. He said he doesn’t think prices will jump to $3 nationwide, but that spikes are “certainly possible in any given week” or in some areas of the country.

The average cost of gas is usually higher on the West Coast due to limited refinery capacity and the lack of pipelines to move gasoline.

In September, gasoline soared to nearly $3 a gallon in the Puget Sound area after Hurricanes Katrina and Rita battered the Gulf Coast.

“News of any developing hurricanes and tropical storms with a potential to cause significant new outages could add to (price) volatility … in the latter part of the summer,” the Energy Department report said.

The Associated Press contributed to this story.

Reporter Eric Fetters: 425-339-3453 or fetters@ heraldnet.com.