Experts say gas prices are near peak for this year

KANSAS CITY, Mo. - The gradual but relentless rise in gasoline prices this year is showing signs of topping out - with prices maybe even heading back down.

Gasoline hasn't cost this much since October, and its price has already outrun most predictions made earlier this year. The national average, according to the Energy Information Administration, is $2.67 a gallon, up about $1 from the first of the year.

But many analysts have been looking for an easing in gas prices sometime this summer, and there were indications this week that it could be near.

Crude oil's price has dropped three days in a row, even in the face of unrest in Iran. That sort of Middle East news last summer probably would have caused oil prices to soar, but instead they fell 15 cents on Tuesday, to $70.47 a barrel.

Lewis Adam, president of Admo Energy in Kansas City, who correctly predicted that gas prices would begin their decline last July, expects them to ease next month.

Demand has been flat for gas and down 8 percent for petroleum products overall, while supplies are ample and most fuel stockpiles are up sharply. All that is beginning to be felt in the market, he said, countering the recent speculation that an improving economy would boost energy demand.

In just the last month, gas prices are up 37 cents a gallon, but that run could be stalling. Wholesale gas prices ran up nearly 7 cents a gallon Tuesday morning on the New York Mercantile Exchange, but they couldn't hold the gain and were down slightly at the close of trading.

"We think it's losing its momentum," Adam said.

That would be good news for households, which could use the extra cash. Even with the recent increase in gasoline prices, consumers are saving more than $600 million a day compared with last summer, when prices topped $4 a gallon.

This year's lower prices also have the travel industry betting that more people, even in the midst of the recession, will hit the road for a vacation. Mike Right, a spokesman for AAA, said he sensed a different mood among its members.

"I'm seeing signs this is going to be a halfway decent summer," Right said.

The Energy Information Administration, for one, doesn't expect gasoline to get near last year's peak, even though the federal agency recently bumped up this summer's price prediction from a couple of months ago.

The agency sees a peak coming in July, with a monthly national average close to $2.70 a gallon. For all of 2009, the agency expects a gallon of regular gasoline to average $2.33.

The Energy Information Administration also thinks that demand will pick up as the economy revives, and in 2010 the agency expects the average pump price to be $2.56.

"I can't rule out anything anymore, but that's our expectations," said Neil Gamson, an analyst for the agency.

In the meantime, consumers filling up their tanks, like Gary Edwards of the Kansas City suburb of Lake Lotawana, have been left to wonder why gas prices have been going up at all, with unemployment rising and the economy still struggling.

"I was surprised because I didn't think the economy could take it," he said.

Speculation and a weaker dollar were enough to push oil prices up nearly $40 a barrel this year. And that, says analyst James Williams of WTRG Economics, was enough to account for almost all of the $1-a-gallon increase in gas prices.

But speculation can carry a market only so far, especially when the fundamentals of supply and demand are moving further toward pushing prices down.

For example, worldwide surplus oil production over the last year has increased from a million barrels to more than 4 million barrels a day. That's more than enough to replace Iran's oil exports, for example, and one more reason analysts are hoping gas prices could soon ease.

"I think we're close to a tipping point," Williams said.

(c) 2009, The Kansas City Star.

Distributed by McClatchy-Tribune Information Services.