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This summer's gas price forecast better than last

The higher prices, linked to rising oil costs, are still lower compared with last Memorial Day.

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Mr. Flynn says the main reason the price of oil has moved up so quickly is that international buyers are beginning to hedge against a pick-up in inflation. “Government policy and Federal Reserve policy is driving up commodities,” he says. “Then, the oil price gained momentum on the rising budget deficit at the same time the dollar got whacked.”

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Flynn says one of the big buyers of oil has been the Chinese. In his view, they are getting tired of lending the US money and then watching the value of their holdings drop as the dollar weakens. “So, now they are spending all those dollars they have on commodities,” he says. “I think they believe holding oil is a better investment than dollars in the bank.”

However, Paul Ting, an expert on the Asian fuel situation, says the demand for petroleum products is also improving in China. In January, demand for oil was off 10 percent compared with a year earlier. Demand today is only off 2 percent compared with last spring.

“So, some of the buying may be that they actually need the product,” says Mr. Ting, who is president of Paul Ting Energy Vision, based in Short Hills, N. J. One sign of this, he points out, is that exports of gasoline and diesel from China are slowing as domestic demand is rising.

Some of the recent price rise in oil could also be related to other global factors, such as an upsurge in fighting in the oil-producing delta region of Nigeria. Government troops are battling disgruntled residents who periodically disrupt oil pipelines. Some analysts say oil production from the country, an important supplier to the US, is off by nearly 1 million barrels of oil per day.

In the past, such disruptions overseas could cause the oil markets to rise. But now some analysts think there might be a cap on the ability of oil to climb – the rising unemployment rate in the US. Compared with a year ago, demand over a four-week period for gasoline is running about 250,000 barrels per day lower, according to the Energy Information Administration.

“Because of the unemployment situation, I think we will see consumer resistance to price hikes early,” says Mike Fitzpatrick, an analyst at MF Global in New York. “If we approach $3 a gallon, we’ll hit the squawk level,” says Mr. Fitzpatrick.

However, Fitzpatrick doesn’t think gasoline prices will get that high. He thinks it will peak by July 4 at $2.60 to $2.70 a gallon and as much as $3 a gallon in California.