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Brace for shock at pump Gas prices may reach highest level in history


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Aug. 22, 2003, 1:29PM

Brace for shock at pump

Gas prices may reach highest level in history


Copyright 2003 Houston Chronicle

The highest gasoline prices in history appear to be just down the road.

Dwindling supplies in the face of increased demand threaten to push pump prices over the national record set last mid-March, when markets were shaken by the prospects of a war with Iraq.

On Thursday, the markets "went ballistic," says Tom Kloza, chief oil analyst for the Oil Price Information Service in Lakewood, N.J. That means the highest pump prices ever seen are just a few days away.

The futures price in New York jumped Thursday by more than 9.5 cents, the biggest move since 1991, while cash market increases of 10 to 15 cents were common across the country, Kloza said. The wholesale price in California is already at a record.

That puts the nationwide retail record average of $1.722 on March 18 within striking distance, as well as the Texas record average of $1.616 also set on that date and the Houston record of $1.639 set May 12, 2001.

"The pump prices are moving," said Alan Stanley, an oil trader who didn't see anything less than $1.55 on his drive home Thursday afternoon. The wholesale market follows the futures market on a daily basis, he said, and pump prices trail not long after that.

"Isn't it pitiful," Mary Mechler asked while paying $1.56 a gallon at a Chevron station on Washington Avenue. She pumped $18.60 worth into her 8-year-old Toyota Camry, "and I only got three-fourths of a tank."

"Outta sight," said retiree Andrew Elliott, in a pickup that he plans to drive as little as possible. Ray Guerra was surprised by the $1.59 per gallon at a Texaco, speculating that the gasoline sellers are "playing the Labor Day weekend."

AAA spokesman Justin McNaull in Washington said the markets hate uncertainty and that accounts for the big jump in the cash markets.

The current dilemma for drivers dates back to early summer when gasoline inventories were lower than normal, only to be drawn down further in recent weeks. Meanwhile, demand increased as the summer progressed.

A lot of people delayed their travel because of a cold and wet spring in the Northeast and the war with Iraq, according to the AAA. Now they are taking a last shot at summer vacation, with predictions that 28.2 million, or 2.2 percent more than a year ago, will travel by motor vehicle on Labor Day weekend.

Meanwhile, gasoline output has been hampered by a spate of refinery problems, and gasoline imports have fallen.

The Wednesday federal inventory report showed another weekly decline in gasoline, but it wasn't until one of the biggest refiners in the Northeast started buying in New York harbor that prices really took off, said Kloza.

This action "spooked a lot of the others," who began to worry about getting enough gas of the right specifications to make deliveries on contracts.

Stanley said that people realized, all of a sudden, "there really aren't that many barrels for sale out there."

But the high prices aren't expected to last for long. Gasoline that sells on the West Coast for the equivalent of crude oil at $77 a barrel isn't realistic and will correct itself, according to Kloza.

And high prices will take a toll on demand, which could back off even before Labor Day, said Stanley. Demand usually stays fairly strong until Labor Day, then drops.

Another positive wild card for motorists is that imports could be drawn back into the United States by the high prices here, said McNaull of the AAA. They fell recently because the Europeans found better margins at home, he said.


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