Prices at the pump vault toward all-time high
Early hikes in gas prices across the US could affect everything from flower delivery to vacation plans.
OAKLAND, CALIF. — Later this month, gas prices will almost certainly eclipse the record for the highest average price-per-gallon in US history. Then, if analysts are right, they will go even higher.
Most years, the discussion about summer price hikes would still be months away. But this year, it has arrived even before the last snow has melted. The reasons range from the inscrutable fancies of the world's preeminent oil-producing cartel to Clinton-era environmental policies only now taking effect.
Each provides an indication of where gas prices will go - and none provides much hope for this summer at the pump. In small ways, the prices are already affecting costs consumers pay for services, such as deliveries from the local flower shop. But the longer the rise continues - and analysts see no end in sight - the more it becomes a drag on the still-stumbling economy, as well as a wrench in the gears of President George Bush's reelection campaign.
"It's a true bread-and-butter thing," says Del Ali, an independent pollster in Washington. "If [gas prices] are high, it's a negative for Bush and there's no way you can spin that off."
In truth, there is little the president can do. President Jimmy Carter was held accountable for the energy crisis of the late 1970s and then defeated by Ronald Reagan in 1980. "If it happens on [Bush's] watch, he's got to take the heat for it," says Ben Lieberman of the Competitive Enterprise Institute in Washington.
Ominously, some experts suggest that the energy outlook hasn't looked so bleak since the last days of Mr. Carter. Not that the country would be as severely affected as it was in the 1970s. For one, today's prices are still well below 1970s levels, when adjusted for inflation. In addition, many US power plants have since shifted to natural gas and coal, and manufacturing is now a smaller share of the economy. As a result, America is less dependent on oil for its well-being.
Yet prices at the pump are expected to reach unprecedented levels in coming months. Gas prices in California have already hit record highs, and the national average is only a few cents below the record of $1.73 a gallon set last summer. With the economic recovery still not producing jobs, it could be yet another issue to anger America's SUV legions. "One of the fascinating things right now is that you have economic news of a recovery, but nobody feels it," says Mr. Ali.
No one factor, however, is to blame for the spike in gas prices. The Organization of the Petroleum Exporting Countries (OPEC) has pledged to cut supply on April 1, sending jitters through the oil market. Moreover, OPEC's move comes at a time when American oil companies are maintaining low reserves in order to cut costs. Rocky US relations with Venezuela - a major oil exporter - has only heightened the unease.
New regulations play a crucial part, as well. As of Jan. 1, refineries of American gas had to produce fuel with less sulfur, according to a law passed in 1999. Next year, acceptable sulfur levels will drop further, and there could be "a couple years of higher prices" before more refineries come online to meet the need, says Aaron Brady, an oil analyst at Energy Security Analysis in Wakefield, Mass.
The greatest test, however, will come later in the season, when refineries shift to making their summer blend. California and several states in the Northeast have banned the use of the additive MTBE, which can poison groundwater if it leaks out of containers. These states mandate the use of gasoline with ethanol as an additive. Since ethanol is more volatile, this blend takes longer to make - meaning refineries will produce less, lowering supplies for the entire nation. How much is the question.
"That's going to be the moment of truth," says Mr. Brady.
For his part, Jim Wotring has already had a moment of truth. Normally, his Los Angeles-area delivery service lowers its prices from $7.95 to $6 after Valentine's Day. Not this year, says the store manager at Jenny's Flowers and Gifts, because of gas prices.
Some consumers are already set to revolt. E-mail chain letters have begun to circulate calling for boycotts at the pumps of the largest gas companies. Perhaps the greater concern for California, though, is that summer travelers might skip long car trips altogether. "It's going to bring a change in consumer attitudes," says Jack Kyser of the Los Angeles Economic Development Council. "We're very nervous about the tourist season."
Tracy Moorish, for one, still plans to travel this summer - but on wings rather than wheels. At a filling station, she confesses that gas prices have changed her plans. A cross-country drive to Florida is out; a plane flight is in. "I did not expect [the high prices] now," says Ms. Moorish of San Francisco. "I thought it was going to go up in the summer, it's kind of a surprise it has gone up so soon, and it is not even spring yet."
• Associated Press material was used in this report.