Gas prices: 'Tis not the season for $3 a gallon. What happened?

Gas prices are near $3 a gallon, which is high for the holiday season. Retailers are nervous about the impact on consumer spending, but analysts say prices should start to come down soon.

By , Staff writer

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    Gas prices: The rise in gasoline prices during the holiday season is very unusual. In many states, $3 a gallon would be welcome since they are already much higher.
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Call it the Grinch in the gas tank.

With only about 2-1/2 weeks until Christmas, the national price of gasoline is $2.98 a gallon, closing in on the three buck mark, a level the nation has never seen this late in the holiday season.

In many states, $3 a gallon would be welcome since they are already much higher. In Hawaii, motorists are paying $3.54 a gallon and $3.51 a gallon in Alaska, according to AAA, the national motorists organization. But, even in New York gasoline costs $3.23 a gallon and in California it’s $3.24. Last year, the price of gasoline was 35 cents a gallon cheaper.

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Retailers are nervously watching to see what the higher gasoline prices mean.

“It is an additional shock to your wallet that you were not expecting,” says Kathy Grannis, a spokeswoman for the National Retail Federation in Washington. “But, we are not hearing that consumers are worried in the long run on the effect of gas prices on their wallets.”

When gasoline prices rise, they siphon money directly out of Americans’ pockets.

“This is like a tax increase, if you put more money into the gasoline tank, you have less money to spend on everything else,” Mark Zandi, chief economist of Moody’s Analytics, said in November when gasoline prices were 10 cents a gallon lower.

Back then he calculated that if the rise in gasoline prices were to last through the year, it would cost consumers $35 billion. “That’s roughly half the cost of providing the tax cut to the upper income group for one year,” he said.

The rise in gasoline prices at this time of year is very unusual.

“Normally, in November, December and January we usually see the lowest gasoline prices for the year because of a decline in gasoline demand,” says Troy Green, a spokesman for AAA in Washington.

According to gasoline analyst Sander Cohan of Energy Security Analysis, Inc. (ESAI), gasoline demand is “sluggish.”

Instead, he says what has hit the gasoline markets is some unexpected refinery outages in October and November. As a result, gasoline inventories dipped and prices rose. Even some planned maintenance went badly as ConocoPhillips’ Bayway Refinery was shut down from the end of September to the end of November and was hit with power problems. Since then the big refinery, which produces 238,000 barrels of product a day, has come back on board.

At the same time the price of crude oil has hovered around $90 a barrel, which is also high for this time of year. Mr. Cohan says the rise is the result of optimism in the energy markets that the tax cuts announced by Obama would stimulate the economy. It’s still not clear if those tax cuts will pass Congress.

Even if gasoline prices peak at over $3 a barrel, Cohan expects it won’t stay that high for long. He says refinery runs have started to increase, which should bring more gasoline on the market.

“Going forward prices are going to have to come down,” he says.

That would be good because the last time gasoline prices were high going into the early winter was 2007. Through the spring and summer, the price of crude oil rose and with it the price of gasoline, which peaked at $4.11 a gallon that July.

“Who knows if it will happen again this spring?” says Mr. Green.

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