Gas prices rose further into record territory Monday, pulled higher by resurgent oil futuresand a growing belief that gasoline supplies are falling as the summer driving season approaches.
Oil futures, meanwhile, jumped by more than $2 a barrel as traders bet the Federal Reserve will continue cutting interest rates. Comments from OPEC suggesting the cartel plans no production increases also boosted oil prices.
At the pump, the national average price of a gallon of gas jumped 3.6 cents over the weekend to a record $3.339, according to AAA and the Oil Price Information Service. That's 58 cents higher than a year ago. In New York Mercantile Exchange trading, May gasoline futures rose 2.98 cents to $2.7865 a gallon.
The Energy Department expects retail gas prices to peak near $3.50 a gallon later in the spring, though that forecast is expected to be revised Tuesday. Many analysts see prices peaking closer to $4 a gallon.
Gas prices are following crude futures higher, but they're also rising on concerns about supplies and demand. Analysts say refiners have cut back on gasoline production due to low profit margins; the rising price of crude means it costs them more to refine gas.
And last week, the Energy Information Administration said gasoline inventories fell more than expected during the week ended March 28. Gasoline demand rose for the first time since January, raising the prospect that supplies will fall further as Americans drive more during the spring and summer.
"It's very normal that you see the ratcheting up of (gasoline prices) before its season," said Stephen Schork, an energy trader and analyst in Villanova, Pa.
Surging gas prices are putting more pressure on consumers already suffering from higher food prices, falling home values and a tight job market. One of the factors pushing food prices higher is diesel fuel, which is used to transport most of the world's food, industrial and consumer goods. Diesel prices, while holding above $4 a gallon, have retreated lately, and fell 1.5 cents overnight to a national average of $4.007.
In oil trading Monday, May futures rose $2.76 to $108.99 a barrel on the Nymex as traders shrugged off a slightly weaker dollar and bet that future Fed rate cuts will weaken the greenback. A weak dollar attracts investors to hard commodities such as oil, which are seen as a hedge against inflation. Also, a falling dollar makes oil cheaper to investors overseas.
Friday's Labor Department report that employers cut payrolls by 80,000 jobs last month, more than expected, was the latest in a string of dismal economic reports to feed energy investor hopes of further rate cuts.
The prospect that the Organization of Petroleum Exporting Countries will hold production steady this year also pushed oil prices higher Monday.
"OPECs Secretary-General, Abdullah al-Badri, made it clear over the weekend that the cartel continues to believe that the world is sufficiently supplied with oil and ... has no plans to increase output any time soon," said Addison Armstrong, director of market research at Tradition Energy in Stamford, Conn., in a research note.
Oil futures are nearing last month's trading record of $111.80 a barrel after a swoon that twice brought them briefly below $100.
In other Nymex trading Monday, May heating oil futures rose 8.87 cents to $3.0808 a gallon while May natural gas futures rose 36.4 cents to $9.686 per 1,000 cubic feet. Analysts said heating oil and natural gas futures were boosted by forecasts for cooler weather over the next two weeks.
In London, May Brent crude rose $2.26 to $107.16 a barrel on the ICE Futures Exchange.