Gas prices jump, with summer vacations in full swing

After declining for 11 weeks in a row, gas prices have started back up – rising about 5 cents a gallon in the past week to $3.38 a gallon.

Is this just a minor hiccup, or can drivers expect to see the price rise more through the summer?

Motorists: Don’t be surprised if the price keeps rising in July. That’s what happened last year, when the price at the pump rose 17 cents a gallon, according to AAA, the national motorists’ club.

"I think we’re going to see a little rise over the next few weeks as people start their vacation driving,” says Sander Cohan, a principal at Energy Security Analysis Inc. in Wakefield, Mass. “Then, prices should fall off pretty quickly after Aug. 1, barring a hurricane.”

Even with the increase, gasoline prices are still 25 cents a gallon lower than last year at this time, and they're down 56 cents a gallon from their 2012 peak of $3.94 a gallon in early April.

AAA expects that motorists should have no trouble finding fuel for their summer vacations, and they can look forward to paying lower prices than last year.

“We don’t anticipate stations running out of supplies, and our expectations are that prices will continue to remain below where they were in 2011, barring any market-moving event,” says Avery Ash, manager of regulatory affairs for AAA in Washington. “If Iran decides to take military action, then everything is out the window.”

Lower fuel prices help consumers, who have more money in their pockets for discretionary purchases. They also relieve some inflationary pressures, since many merchants don't need to add surcharges for deliveries. And, in theory, if gasoline prices remain low, that might help President Obama this fall.

Behind the recent rise in gasoline prices seems to be some queasiness in the oil markets over saber rattling in the Strait of Hormuz following Western sanctions against Iran. The Iranians have been running military drills in the waterway, and the United States has beefed up its naval presence. At the same time, a labor dispute involving Norwegian oil workers hasn’t helped, as some crude production from the oil-rich nation has been cut off.

“With global supply already tight following sanctions on Iran, additional supply disruptions would be expected to put upward pressure on oil prices,” says Mr. Ash in an analysis.

As the price of oil has risen, so has the price of gasoline. According to AAA, prices have increased in 33 states and the District of Columbia. The most dramatic increases, Ash says, have been in the Midwest, where the average price is up more than 10 cents a gallon.

In some Midwest states, the rise has been even bigger. In Indiana and Ohio, the price has soared by 26 cents a gallon. Kentucky pump prices are up 16 cents a gallon, and Illinois prices are up 14 cents a gallon.

The sharp rise in these states is in part because of increased volatility in the Chicago spot market for gasoline, Ash says.

“When prices came down in June, they had the largest declines,” he notes.

According to Mr. Cohan of Energy Security Analysis, supplies on the East Coast have also been tight because of logistical problems getting gasoline from the Gulf Coast to consumers. Fuel stations have needed to get their gas from the Gulf because some major refineries closed in the Philadelphia area and have not yet reopened under new ownership.

“Fuel supplies in the East are tighter than the rest of the country,” Cohan says.

Often after Labor Day, gas prices start to fall. Last year, they dropped 46 cents a gallon to $3.21 per gallon. They remained low right through to January, when prices bottomed out for the year so far at $3.28 a gallon.

This year, Cohan is expecting a similar decline in the wholesale market of 40 to 50 cents a gallon.

“In the fall, we have a sharp decline in gasoline demand as people drive less and the kids go back to school,” he says. “We should have lower prices as long as there is no war and no hurricane.”

Could gas prices dip below $3 a gallon by year-end?

“We’re not predicting that, but you can make a case that given our current economic conditions, there is reason to think gasoline could be below $3 a gallon this year,” Ash says.

In South Carolina, the lowest-priced state in the nation, fuel prices are currently $3.02 a gallon, says AAA.