Gas Prices Slip From Record, but Could Reach $4 a Gallon This Spring, the Government Said. Retail gasoline prices pulled back slightly from record levels Tuesday and gave some consumers a small break, but a new government forecast said gas could reach as high as $4 a gallon during the summer driving season.
Oil futures prices, meanwhile, fell as the dollar stabilized, giving investors an opportunity to lock in profits from crude's recent rally. Limiting the declines were developments in Iran, which announced plans to expand its uranium enrichment program and said it has tested key equipment, a move that raised the market's concerns about political conflict that could affect the country's oil exports.
In its monthly report on petroleum supplies and demand, the Energy Department's Energy Information Administration forecast that monthly average pump prices will peak near $3.60 a gallon in June, but could rise as high as $4 a gallon at times. That's a dime higher than the EIA's previous monthly average projection, and brings government forecasts closer to those of many analysts who expect gas prices to peak close to $4 a gallon.
The government also predicted high prices will cut demand for gasoline at the height of the summer. Gas consumption will fall by about 0.4 percent during the peak summer months, and overall consumption of petroleum products will drop by 90,000 barrels a day this year, the EIA said. The agency previously said petroleum consumption would rise by 40,000 barrels a day.
High prices are already having an impact on demand, which has fallen since January.
On Tuesday, regular unleaded gas prices slipped slightly to a national average of $3.331 a gallon from Monday's record of $3.339, according to AAA and the Oil Price Information Service. Prices are 55 cents higher than a year ago.
Crude oil's rise above $100 earlier this year is the main reason gas prices have been rising. Crude futures rose to a trading record of $111.80 last month, and have since traded in a range between about $100 and $110.
On Tuesday, light, sweet crude for May delivery fell 59 cents to settle at $108.50 a barrel on the New York Mercantile Exchange, but alternated between gains and losses. The dollar stabilized against the euro Tuesday, making oil less effective as a hedge against inflation. That led some investors to take profits from a rally that's added 8 percent to the price of a barrel of crude in a week. Analysts believe the dollar's long decline fed the investment surge that pushed oil above $100 earlier this year.
However, the declines were limited by concerns about Iran's announcement that it has begun installing and testing equipment at a uranium enrichment plant. The U.N. Security Council has already passed sanctions against Iran for expanding its nuclear program, and the market is concerned that an escalation of tensions could affect oil exports from the Middle East.
"The announcement of the (equipment) there I think makes people a little bit nervous," said Michael Lynch, president of Strategic Energy & Economic Research Inc. in Amherst, Mass.
Many analysts expect oil prices to rise higher in coming months, possibly above last month's records, as the Federal Reserve cuts interest rates later in the year. Lower rates tend to weaken the dollar. Minutes of the Fed's March meeting, released Tuesday afternoon, showed policymakers were far from unified in their decision to cut the key federal funds rate by three-quarters of a percentage point, but are worried about the severity of the economic slowdown.
High oil prices have also sent diesel prices higher. Diesel's national average price rose 1.3 cents to $4.02 a gallon on Tuesday, AAA said, within 2 cents of last month's record.
"We'll set a new record this week -- probably in the $4.05 to $4.10 a gallon neighborhood," said Tom Kloza, publisher and chief oil analyst at the Oil Price Information Service in Wall, N.J.
Diesel fuel is used to transport most of the world's food, industrial and consumer products, and is one of the reason food prices have risen so sharply this year.
In other Nymex trading Tuesday, May heating oil futures rose 2.59 cents to settle at $3.1102 a gallon. Analysts said heating oil prices are being pushed higher by strong global demand for diesel, which is closely related to heating oil, and a fire that shuttered a refinery in Finland.
May gasoline futures fell 3.31 cents to settle at $2.7504 a gallon, and May natural gas futures fell 9.4 cents to settle at $9.697 per 1,000 cubic feet.
Pretty soon my weekly check will to buy gasoline to go work sucks "OMAR"