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$4 a gallon for gas? It's possible

WASHINGTON - Drivers beware: Today's high gasoline prices soon may look like a bargain because they are expected to peak at $3.60 a gallon nationwide in coming months, according to a government report released yesterday.

High gas prices are predicted through the summer. (File Photo)
High gas prices are predicted through the summer. (File Photo)Read more

WASHINGTON - Drivers beware: Today's high gasoline prices soon may look like a bargain because they are expected to peak at $3.60 a gallon nationwide in coming months, according to a government report released yesterday.

In the latest bit of bad news for cash-strapped consumers, the Energy Information Administration predicted that average gasoline prices would shoot up to $3.60 a gallon in June and average $3.54 per gallon over the summer driving period - an increase of 61 cents over last summer.

It is entirely possible, agency administrator Guy Caruso said, that gasoline prices could top $4 a gallon during parts of the summer driving period, defined as April 1 to Sept. 30. The agency cited variations among the states and also within states. For example, it said, the price in San Francisco was about 3 cents higher than for the state of California in the first quarter of this year.

High-price states such as California, where gasoline cost 32 cents per gallon above the national average in March, are pulling up the national average, the information administration said.

Breaking down the average projected prices, the agency chief said the West Coast was likely to see an average price of $3.78 per gallon of unleaded gasoline over the summer driving period. That would be followed by the Rocky Mountain states at $3.53 a gallon, the Midwest and East Coast at $3.50 a gallon and the Gulf Coast states - closer to the production of much domestic oil - with the lowest average price, $3.41 per gallon.

The expected high prices, Caruso said, would lead to a slight cut of 0.04 percent in U.S. gasoline consumption during the peak summer driving season, the first time that has happened since 1991.

That year, the downturn in consumption accompanied a brief recession. Caruso said during his agency's annual energy conference that the U.S. economy was likely to grow at a rate of 1.2 percent for all of 2008, but would contract during the first half of the year.

"So technically we are projecting . . . a small recession in the first half of this year," he said.

The information administration - the statistical and analytical arm of the Energy Department - said that the monthly average diesel price was expected to peak at just above $3.90 per gallon this month and average $3.73 per gallon over the summer driving period - an increase of 88 cents over last summer's average. That would be bad news for truckers, who deliver much of what we eat, wear and buy.

If gasoline prices remain high, the agency report says, Americans may drive less and consume less gasoline.

"The current record-high prices for both crude oil and product prices belie the weakness in U.S. product demand," the agency said. "This weakness is expected to be a prominent feature of the summer driving season."

The primary reason for the high gasoline prices is the record price for crude oil, which slid 59 cents to close at $108.50 a barrel in trading yesterday on the New York Mercantile Exchange. The agency forecast oil prices above $100 a barrel - a level unthinkable a year ago - for the remainder of the year.

Oil traders are shrugging off the highest U.S. inventories of oil and gasoline in a year, focusing instead on the growing global demand for oil and related products and the risk of supply disruptions.

Analysts cite rising global oil consumption, particularly in China and fast-growing Middle Eastern economies, as a cause of tighter supply. Combined with reduced spare oil-production capacity, this growing demand has led oil traders to fear supply disruptions and drive up prices.

Some analysts at the information administration conference saw a silver lining. Adam Robinson, an energy researcher at the New York investment bank Lehman Bros. Holdings Inc., said the third quarter of 2008 might reflect the high-water mark in oil prices. He predicted that new refineries in Asia and the Middle East and new Saudi Arabian oil production would provide a global supply cushion as early as next year.

"We think it will be very difficult to ignore by the end of next year that we have four [million] to five million barrels per day of spare capacity . . .," Robinson said. "We believe some of the long-term trends that have been underpinning oil prices over the last five years may start to change."

Energy Outlook

Peak price for regular gasoline: $3.60 per gallon in June.

Average gas price for 2008 driving season: $3.54 per gallon, up from $2.93 a year ago.

Average diesel price for driving season: $3.73 per gallon, up from $2.85 last summer.

U.S. fuel consumption: Will fall 85,000 to 90,000 barrels per day this year, from the 2007 total of 21.6 million barrels per day. It will rise 200,000 barrels per day in 2009.

SOURCE: Energy Information AdministrationEndText