More hikes ahead for gas prices

Terry Anderson leans against his rusty Chevy van and intently watches the numbers ticking on the gas pump. Just seconds into filling up, he eases his hold on the trigger as the price reaches $1.97, $1.98, $1.99.

"I'm only getting $2.00," he says sheepishly at a service station in Birmingham, Ala. At $1.55 a gallon for regular, two bucks - for not even a gallon and a half - is all he can afford. "I remember when gas was $1.10 a gallon. That would really help me out right about now."

While many Americans may echo his sentiments, it's beginning to look as if it could be a second consecutive summer of wallet-emptying prices. Over the past two weeks, gasoline prices are up 6 to 8 cents a gallon nationally. And in some areas that had high prices last year, such as the Great Lakes region, gasoline prices are up 23 cents a gallon in the last month.

"Unfortunately, if nothing is done, the price will go over $2 a gallon by July 4," predicts Sen. Charles Schumer (D) of New York and a member of the Senate Energy and Natural Resources Committee.

The inflation at the gas pump comes at a time when the national economy is teetering and economists are concerned that higher prices will be the final straw for consumers. "An increasing proportion of consumers are living paycheck to paycheck, and if anything goes wrong, they could have difficulty paying off their bills," says Mark Zandi, chief economist at Economics.com. "If consumers have to devote more money for gasoline, it could be enough to cause them to retrench, and the whole economy could unravel."

Unfortunately, there are no quick fixes, energy analysts say, because the problem stems from refineries unable to keep up with demand. Over the past several weeks, several large refineries were shut down for normal seasonal maintenance. This caused oil companies to draw down inventories well below normal. The situation could be exacerbated by an explosion this week at a United Kingdom-Conoco refinery that exports 60 percent of its gasoline output to the US.

Unhappy drivers

There is no question consumers are noticing the rapidly rising prices. As he loads up his Mercedes SUV with premium gasoline at $1.95 a gallon, Ron Mintz of Hartsdale, N.Y., says he's shocked. "It seems like it's gone up at least 20 cents a gallon since I filled up last week," he says. Another motorist, Bruce Shifren of Ardsley, N.Y., says he's planning to shop around for lower-priced fuel. "It hurts," he says, as he pumps gasoline at the A Plus Sunoco in Greenburgh, N.Y.

Their complaints resonate with Senator Schumer, who held a press conference outside the Westchester gas station Tuesday. He wants President Bush to "put the Strategic Petroleum Reserve [SPR] back on the table." But Mr. Bush has said he won't tap into the reserve the way President Clinton did last fall, when he sold 30 million barrels of oil to try to lower prices before the home-heating season started. "When Bush says he won't use the SPR, he's removing the ace in the hole that we have against OPEC," he says.

Claire Buchan, a spokeswoman for the White House, says Bush "believes the SPR should be strictly for emergencies, like war." The president has asked Vice President Dick Cheney to chair a task force to seek a long-term approach to the nation's energy problem. Shortly, the task force is expected to issue its report.

Still, there is plenty of crude oil available - inventories are the highest since August 1999. Rather, the problem is a bottleneck in refining, says Geoff Sundstrom of AAA in Heathrow, Fla. "There are 50 different blends of gasoline, and it breaks up the market into small pieces and drives competition out," he says. "Some companies are opting not to supply some markets."

Public Citizen, a grass-roots consumer organization in Washington, says the government should investigate what it terms "collusion" by the oil companies. "There is no assurance there is not a price manipulation going on," says Wenonah Hauter, director of the group's energy and environment program. However, the Federal Trade Commission has already conducted an investigation into the problems in the Midwest last year and concluded there was no evidence that major oil companies illegally conspired to drive up prices.

Enter Congress

This issue will be the subject of a hearing next Thursday by the Senate Energy and Natural Resources Committee, which is looking into differing regional and state fuel standards and the impact on supply. Last year there were shortages of gasoline around Chicago, in part because the refiners were not certain how much of each grade they had to produce.

"The good news is we have last summer's learning experience," says Kate Warne, an oil analyst at Edward Jones, a St. Louis-based brokerage house.

Ms. Warne thinks gasoline prices will be about the same as last summer. She expects US refiners to crank up production in the weeks ahead. Already that is happening. And she anticipates some Asian refiners with excess capacity will also start to supply the US market. "It could be positive in terms of solving the short-term problem," she says.

Back in Birmingham, residents are keeping a wary eye on pump prices, particularly after hearing about rising costs in other parts of the country. "I mean, what is it in New York now? $2.20?" asks Brandon Vinning, getting into his red Toyota truck at a gas station. "I hope we don't see that."

Staff writer Kris Axtman contributed to this report from Birmingham, Ala.

(c) Copyright 2001. The Christian Science Monitor