11% Rise in Gas Prices Expected

By Steven Mufson
Washington Post Staff Writer
Wednesday, April 12, 2006

Gasoline prices this summer will average $2.62 a gallon for unleaded regular, 25 cents a gallon more than last summer's average, the Energy Department predicted yesterday in its annual summer fuels outlook.

The department's Energy Information Administration blamed high gasoline prices on steady growth in world oil demand, limited growth in oil production and continuing risks of geopolitical instability that it said would keep crude oil prices high through the remainder of the year.

Although two hurricanes limited U.S. oil production last year, the EIA said that "in some ways 2006 is likely to bring an even tighter global petroleum market than 2005" because consumption growth this year is expected to outpace production growth by 400,000 barrels a day.

Some analysts said the Energy Department's April-through-September forecast could be too low given that gasoline prices are already at the predicted level and, as the department's analysts noted, there are still risks of new hurricanes and political strife.

"The government projection, which is for an average over this summer (not a particular date), may prove quite low if any of the big 'IFs' do not weigh in favor of gasoline supply -- including stable or lower crude prices, sufficient ethanol supplies, and sufficient gasoline imports, which are tougher to come by this year" because of tighter sulfur and ethanol specifications in the United States, said Trilby Lundberg, publisher of the Lundberg Letter, in an e-mail.

Political tensions drove crude oil prices higher yesterday. Oil prices edged up to a seven-month high amid worries about supplies in Nigeria, where anti-government forces have been attacking pipelines, and Iran, after reports that the Bush administration was examining military options for airstrikes against Iranian nuclear facilities. Anxiety about Iran intensified yesterday after Iran's president asserted that his country had successfully enriched uranium, an important step for producing either nuclear power or nuclear weapons.

Contracts on the New York Mercantile Exchange for May delivery of crude oil jumped as high as $69.45 before settling at $68.98 a barrel, the highest level since Sept. 1, and up 24 cents from Monday. Contracts for May delivery of gasoline jumped 4.5 cents a gallon.

An executive of one major international oil company said in an interview yesterday that both the Bush administration and Iran's president are "posturing." Speaking on condition of anonymity because of the political sensitivity of the issues, he said, "It's in nobody's interest to bring this to crisis, but it can happen." He said that if an attack on Iran resulted in a cutoff of Iranian oil exports, it would be a "disaster" for oil markets. He noted that Iran exports close to 2 million barrels a day, more than the world's spare capacity at this point.

The petroleum product prices are bad news for motorists and for businesses. At FedEx Corp., fuel costs (primarily for diesel and jet kerosene) are running at more than 11 percent of all expenses in the current fiscal year, up from 6.6 percent two years ago. In 2001, the company started imposing fuel surcharges; the surcharge for ground services is set at 3.5 percent, below the December peak of 5.25 percent. But the charge will probably rise when it is recalculated next month.

Higher gasoline prices also could continue to hurt sales of some of the bigger and more profitable vehicles produced by U.S. automakers. In a blog distributed to journalists and financial analysts, Jason Vines, vice president of communications for DaimlerChrysler AG's Chrysler Group, blasted the oil industry for the price increases.

"Here we go again. Just as the weather warms and Americans are turning their thoughts to hitting the roads for vacations or weekend getaways, the prices of gasoline and diesel fuel are rising faster than the odds of the Detroit Lions playing the Super Bowl. It's a 'coincidence' that has nothing to do with chance, but almost everything to do with greed by the big oil companies," he wrote. (The American Petroleum Institute issued a statement saying, "We assume this individual speaks solely for himself and not for Daimler Chrysler or for the auto industry itself.")

Yet the Energy Department said U.S. motorists, undaunted by the high prices, will consume 1.5 percent more gasoline than they did last summer. The forecast said gasoline consumption will average 9.4 million barrels a day this summer, even though prices at the pumps have risen 20 percent this year to a nationwide average of $2.68 a gallon for unleaded regular. Gasoline accounts for about 45 percent of U.S. oil consumption.

Guy F. Caruso, administrator of the Energy Information Administration, predicted that gas prices will rise by another 10 to 15 cents a gallon over the next few weeks before leveling off in May.

Strong demand makes it easier for refiners and marketers to pass along crude oil price increases to consumers. The EIA said the margin between retail gasoline prices and the cost of West Texas intermediate crude oil has widened by almost 30 cents a gallon since early February.

Staff writer Bill Brubaker contributed to this report.

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