Why US pump prices are on the rise – once again

Some refineries face outages. Prices could rise to $3 a gallon by Memorial Day.

from the April 11, 2007 edition

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New York - Memorial Day is almost seven weeks away, but consumers are already paying prices at the pump usually associated with the peak of summer.

In California, motorists are forking over an average of $3.25 a gallon. Nationally, the average price has hit $2.87 a gallon. There are even reports of isolated shortages, particularly in the Southeast. Refiners' profit margins on gasoline are the biggest they've been since hurricane Katrina.

According to energy specialists, the bad news at the pump stems from multiple problems at refineries: Fires and other outages – some even attributed to animals – have resulted in curtailed production.

"It just keeps piling on and piling on," says John Kilduff, a senior vice president at Fimat USA, an energy trading company in New York. "It looks like the national average will hit $3 a gallon by Memorial Day."

The rising costs serve as a reminder that the nation's gasoline supply network does not have much stretch. To satisfy demand, the United States is relying on gasoline imports, which are subject to shifts elsewhere in the global thirst for energy. Even so, US demand for gasoline only continues to rise, despite the higher prices of the past several years.

"When you look at the data, you see some refinery capacity increases, but demand increases have resulted in tighter markets," says John Felmy, chief economist for the American Petroleum Institute in Washington.

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