Oil and Gas

Look Out, Here Comes $4 A Gallon Gasoline


U.S. motorists may face gasoline prices as high as $4 a gallon this summer as crude oil costs smash records, painting a bleak picture for consumers already feeling the pinch of an economic slowdown.

Crude oil, the main feedstock refiners use to make fuel, hit an all-time peak over $102 a barrel Thursday, nearly doubling prices from a year ago amid a surge in speculative investment.

"American consumers know these oil prices are an unpleasant omen of events likely to occur at the nation's gas pumps over the next few months," said Geoff Sundstrom, spokesman for travel and auto group AAA.

"If current oil prices hold, American drivers should expect to pay new record high prices for gasoline which could easily reach $3.50 per gallon or more by summer. In some regions of the country the average price could approach $4 per gallon," Sundstrom said.

Surging energy costs have stiffened the head winds on the U.S. economy, which is already slowing in the fallout of a housing slump and credit crisis.

High gasoline prices are stoking fears that the economy will continue to worsen, U.S. President Bush said on Thursday.

"That creates a lot of uncertainty," Bush said. "If you're out there wondering what your life is going to be like and you're looking at $4 a gallon, that's uncertain."

The grim outlook for pump prices comes even as weakening U.S. fuel consumption and robust domestic production boosts gasoline inventories to their highest levels since 1994, when a gallon went for less than a dollar.

"Right now, it's not about gasoline supplies, because gasoline supplies are high. It's all about the oil," said Phil Flynn, an analyst at Alaron Trading in Chicago.

U.S. retail gasoline prices averaged $3.16 a gallon on Thursday, up 32 percent from a year ago but below the record $3.24 hit ahead of the last Memorial Day holiday in May.

U.S. road travel typically peaks between May and September when families take vacations.

While analysts said record crude oil prices will create record gasoline prices this summer driving season, some cast doubt on the ability of crude oil prices to stay at these high levels much longer.

"One-hundred-dollar oil is going to be difficult to sustain going forward," said Jim Ritterbusch, president of Ritterbusch & Associates in Galena, Illinois.

"As we become more and more detached from underlying fundamentals, it just increases the possibility of a sharp price downdraft, down to at least $85 a barrel in crude oil," Ritterbusch said.