 By DAVID R. BAKER San Francisco Chronicle March 28, 2006
In the past month, the price of a gallon of regular has jumped about 25 cents nationwide. Americans on average now spend about $2.50, according to the AAA auto club. Now analysts wonder whether prices will quickly peak or march steadily upward into the summer. Some speculate we may even see a return to $3 a gallon.
February and March typically bring an increase in prices, as drivers take to the road again after a winter lull. This spring, however, there's an added twist. Many refineries nationwide plan to change the chemical formula of their gasoline, dropping the additive MTBE (methyl tertiary-butyl ether). The substance, used to combat air pollution, can taint water supplies and has been banned in several states. Most refiners will substitute ethanol for the MTBE. But that has triggered fears that some refineries may have trouble maintaining a steady supply of ethanol, with any glitch cutting the amount of gasoline they can produce. As a result, wholesalers are buying more gasoline now as protection against possible disruptions later this year. Wholesale gasoline prices have jumped in response, according to the federal government. The U.S. Energy Information Administration last week reported that wholesale prices have risen nearly 50 cents since mid-February. Granted, the fear of supply disruptions is still just that - fear rather than fact. But that has been enough to move the market price. Then there's the cost of crude oil - the largest element in gasoline's retail price. Crude bottomed out in mid-February at $57.65 per barrel, a price that would have been considered astronomical before last year. It closed Monday at $64.16. The price increases at the pump, however, may not last. Prices tracked by AAA remained largely unchanged over the weekend. The national average actually dipped by less than a penny. The Energy Information Administration, for its part, holds out the possibility that prices may hit another peak this summer. But in a petroleum-market update last week, the administration argued that the steepest increases were over for now. "At least for the next couple of weeks, a sharp increase in retail prices ... does not appear to be on the immediate horizon," the update read.
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