Last Updated:September 2 @ 05:50 pm

Gas prices hit late-summer record

By Sandy Shore

(AP) - You may be paying more than ever for a late-summer drive.

U.S. drivers are paying an average of $3.72 per gallon on Monday. That's the highest price ever on this date, according to auto club AAA, a shade above the $3.717 average on Aug. 20, 2008. A year ago, the average was $3.578.

More daily highs are likely over the next few weeks. The national average could increase to $3.75 per gallon by Labor Day, said Tom Kloza, chief oil analyst at Oil Price Information Service. By comparison,gas prices stayed below $3.70 in late August and early September in both 2008 and 2011. Kloza and other analysts expect prices to start dropping after Labor Day, barring a hurricane or other unforeseen event.

Retail gasoline prices have risen nearly 12 percent since July 1 because of higher oil prices, and problems with refineries and pipelines that created temporary supply shortages in some regions. An increase in the price of ethanol, which is blended into gasoline, also contributed to the rise in pump prices.

The pace of the increases has slowed considerably, however. Gas rose 19 cents in the two weeks ended Wednesday. It's up just 1 penny in the five days since. Gas costs about 26 cents more than a month ago and 14 cents more than a year ago, according to AAA, OPIS and Wright Express.

A few drivers are catching a break. Retail prices were lower than this date in 2011in four states — Montana, Wyoming, Utah and Idaho, said Tom Kloza, chief oil analyst at Oil Price Information Service.

In trading in New York, oil futures fell on concerns about Europe's economy. European leaders are beginning a series of discussions that could determine Greece's future and the stability of the 17 countries that use the euro.

Benchmark oil dropped 32 cents to $95.70 per barrel in New York. Brent crude, which is used to price international varieties of oil, rose 12 cents to $113.83 per barrel in London.

Other futures prices on the New York Mercantile Exchange:

— Heating oil increased 1 cent to $3.10 per gallon.

— Wholesale gasoline rose 2 cents to $3.05 per gallon.

— Natural gas rose 3 cents to $2.75 per 1,000 cubic feet.

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7 Comments

  1. bgintnComment by bgintn
    August 20, 2012 @ 2:31 pm

    Trial balloons floated all over Washington during the past few days.
    Releasing oil from the Strategic Petroleum Reserve (SPR).

    Four Reasons Why Washington’s SPR Plan Won’t Work
    by Dr. Kent Moors

    Dear Oil and Energy Investor,

    With oil prices showing no signs of retreat during the final months of the U.S. presidential campaign, beltway insiders are turning to one misguided solution to combat rising oil prices.

    Releasing oil from the Strategic Petroleum Reserve (SPR).

    Trial balloons floated all over Washington during the past few days. The only reason politicians didn’t move on this sooner (say a few months ago) was the price level. Until the last month or so, both oil and gasoline prices were heading in the other direction.

    Near-month futures contracts for West Texas Intermediate (WTI), the crude oil benchmark traded on the NYMEX, were below $78 a barrel in intraday trade toward the end of June, while the same futures for RBOB (the NYMEX traded gasoline contract) were at $2.55 a gallon.

    At the time, all the sage pundits predicted that oil would fall below $60 a barrel; some even suggested that prices could approach $40. On the gasoline side, these same wise guys were proclaiming we may see prices at the pump breach $3.

    Well, everything has changed quickly.

    This morning, markets opened with WTI 23% higher than they were in late June and RBOB up by more than 20%. Oil stands at more than $96 a barrel in New York, while Brent has exceeded $116 a barrel in London. And retail gas prices are once again approaching $4 a gallon.

    Recently, I discussed why oil prices are moving up. But for some politicians, including the fellow running for reelection at 1600 Pennsylvania Avenue, those prices are becoming a job liability.

    So it’s back to hitting the SPR.

    But there are four reasons why tapping the SPR won’t make oil prices any cheaper in the end.

    Maybe you should let your Congressman know about them…

    Untapping a Political Convenience

    The reserve contains some 700 million barrels of oil. The initial rationale for the SPR was the Arab oil embargo of 1973-74, an attempt to prevent a recurrence of short-term price spikes due to our dependence on imported crude.

    But the market has changed since then.

    There will never again be an embargo of sales to the U.S. The SPR is now regarded as an offset to national disasters or other short-term national need. And it is also a protection against market imbalances. On 18 occasions since the creation of the SPR, oil has been drawn to offset shortfalls domestically, respond to a natural disasters (Hurricane Katrina), overcome international trade problems, or level off cross-border consignments.

    And after each of these occurrences, the U.S. replenished the SPR.

    In 2011 during the Arab Spring, however, 30 million barrels were drawn down to combat the loss of Libyan oil and a spike in global crude prices. Then, the 30 million was matched by a similar commitment from the International Energy Agency (IEA) – provided via member states.

    As I wrote in OEI at the time, the attempt was destined to fail from the beginning. And it did. The experiment ended after one month. The entire six million barrels were not even used because there were insufficient buyers.

    Tapping the SPR Won’t Work

    Washington is attempting to use the reserves for political purposes with hopes of artificially affecting crude prices.

    But this won’t decrease prices over the long run for four reasons:

    First, an SPR is not designed to work this way. Such draw downs will not have the intended effect because they are not in response to a genuine market lack of supply. The availability of excess oil, in itself, will not determine prices.

    Second, the amount necessary to affect prices over any extended time period is well beyond the ability of a political manipulation. Take last year’s unsuccessful exercise, for example. The total amount of 60 million barrels was the commitment for an entire month. However, that translated into about 18 hours of global oil consumption.

    Third, the market compensates for the additional supply rather quickly. Unless policy makers are prepared to continue the draw downs, there is no effect. This is always the problem with policy moves that are not in response to genuine causes.

    Finally, should the use of SPR barrels continue for any length of time, the reserves would need to be replaced. That requires purchases directly from oil companies. The market then draws its attention away from the draw downs and toward the buying of oil for replenishment as the base point for determining price. The attempt then would fail anyway and priced would move back up, based this time on what was actually paid for the oil moving back into the SPR – rendering the entire approach a grand waste of time.

    All of this merely points toward a simple reality when it comes to oil prices. Presidents cannot influence them very much. It makes no difference what party the president represents or how much of a supporting majority that party provides on Capitol Hill.

    There are no political solutions to higher oil prices.

    What has been showing up in these trial balloons is a bit of “oil jawboning.” Reminding the futures contract traders of a possible government fiat may subdue rises now and then. But draw downs from the SPR cannot restrain prices that are moving up because of market factors.

    Whether or not there is an election looming.

    Sincerely,
    Kent

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    • MorganComment by Morgan
      August 20, 2012 @ 5:42 pm

      Washington state, at least on the western part, almost every station now sells regular for $3.97 a gallon. A couple of the major ones like Chevron and Shell are over $4 for regular, with the exception of ARCO stations which are about $3.80 or so.

      We need to get Obama OUT OF OFFICE and get someone in there who will let us build a few more refineries, drill for our own oil, build the XL Pipeline and quit depending on foreign oil.

      What I find interesting is that just before a major holiday, like Labor day, all of a sudden crude goes up, or there is a refinery fire, or some other cockamamie excuse to gouge the folks.

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  2. timbComment by timb
    August 20, 2012 @ 2:49 pm

    Kent, thanks for sharing your industry knowledge.

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  3. FlaJimComment by FlaJim
    August 20, 2012 @ 3:59 pm

    ‘Only’ $3.599 here at a busy intersection (possibly lower elsewhere). Guess we’re living right in Tampa.

    (sigh) Remember paying less than 1/10th of that when I was a kid.

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    • MorganComment by Morgan
      August 20, 2012 @ 5:43 pm

      Greed my friend, Greed!

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  4. middlegroundComment by middleground
    August 20, 2012 @ 8:30 pm

    What Dr. Kent Moors left out was that domestic oil recovered from Federal Lease Land (offshore) is taxed by a method similar to Europe’s VAT where taxes and costly regulations are added at every step. But let us look first at an imaginary prospect in the GoM. A company may buy a three dimensional seismic map or have one run by a geophysical company of the area the government is going to open as a potential lease area. The company’s geologists, geophysicists and representatives of a number of geoscience specializations gather evidence on the potential of the lease area and then based on their recommendation the company may submit sealed bids that may run to hundreds of millions for a square mile of sea bottom a hundred miles offshore based on the area’s theoretical potential. Assuming everything looks great, the company hires a drilling platform from one of the international drilling companies to explore their prospect for perhaps $50,000.00 per day or more. Amazingly, they find oil at a water depth of 8,000 feet and 10,000 feet down in the sedimentary column, but as is true of most reservoirs it is broken by faults. Additional specialists are called in to install and cement in place a blowout protector to prevent the pressures at a depth of 18,000 feet from exploding onto the surface, but any change in reservoir pressure can cause a fault to move and result in a catastrophic increase in pressure. It is for this reason the company cemented a blowout protector in place before completing the well and extracting oil or gas. Assuming this is a new well, a pipeline from the well to a pipeline needs to be completed connecting the well to a collection point.

    Finally we have a situation where oil is being produced and the government gets 12 ½ % of the value as a royalty before the company collects any of its costs, which means of a $100 barrel government gets $12.50. The pipeline from well to collection point is taxed. The refinery is taxed and regulated by government, but finally the refinery produces a gallon of gas and other products which are transported by truck or pipeline to a distribution point and finally to your service station where more taxes are collected to build and maintain highways. The company may make 15 cents on $4/gal gas and government a whale of a lot more, but as with so many things in today’s world, the company takes the risk, absorbs the costs and gets the blame if anything goes wrong. Government is always there to blame the company and in the case of BPs blowout will extort money for claimed environmental damage.

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  5. Gary ChambersComment by Gary Chambers
    August 21, 2012 @ 3:44 pm

    Over seventy and remember Gas wars! Those were the days the oil companies competed with each other for business. Then it happened, they got together and formed OPEC and the large American and European companies fell into a cartel that controlled price. AT&T was in the same situation years ago and controlled telephone pricing until the government broke them up to smaller companies that competed with each other for fair pricing. The government could do the same today with the oil companies but the Obama administration doesn’t want that to happen. They want the price to go to ten dollars a gallon to force the American public to get alternative energy from Obama’s failing energy companies. I assure you if Obama’s millions of tax dollars given to solar companies had gone to small oil companies and more oil leases were available there would be lower gas prices and no bankruptcies and the loans would have been paid back with interest.

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