Retail gas hits record $3.50 a gallon as oil marches higher

Business Materials 22 April 2008 06:32

( AP ) - Rising gasoline prices tightened the squeeze on drivers Monday, jumping for the first time to an average $3.50 a gallon at filling stations across the country with no sign of relief.

Crude oil set a record for the sixth day in a row - this time closing above $117 a barrel - after an attack on a Japanese oil tanker in the Middle East rattled investors.

"It's killing us," said Jean Beuns, a New York cab driver who estimated he now makes $125 to $150 less per month than in the fall because of costlier gas. "And it was so quick. Every day you see the price go up 5, 6, 10 cents more."

Diesel prices at the pump also struck a record high of $4.20 a gallon, according to AAA and the Oil Price Information Service. That's sure to add to truckers' costs and drive up the price of food, clothing and other goods shipped by truck.

"You and I are going to pay more," said Bob Costello, chief economist of American Trucking Associations. "Exactly how much ... I can't tell you, but it's got to show up."

Gasoline and diesel prices are expected to keep climbing as they trace the path of crude. Oil prices are charging ahead along with a host of commodities that are enticing speculators seeking hedges against a weakening dollar.

Light, sweet crude for May delivery rose to a record $117.76 a barrel on the New York Mercantile Exchange before settling at $117.48, up 79 cents from Friday's close.

Gas jumped more than a nickel over the weekend and is up 23 percent from a year ago. Drivers in New Jersey are paying the least, while drivers in California pay the most, $3.86 a gallon for regular unleaded.

The Energy Department predicted earlier this month that monthly average gasoline price will peak at more than $3.60 per gallon in June and could even reach $4.

"It's uncharted territory," said Tom Kloza of the Oil Price Information Service, Wall, N.J. "I don't think we're done, but I have to believe we're in the eighth or ninth inning" of price increases.

The higher prices are already prompting some drivers to cut back. In New York, Elvis Ragbir and Anthony Winckler said they are driving less and taking the subway more.

"I'm spending my gas money on MetroCards," Winckler said in the waiting room of a vehicle inspection station in Manhattan. Ragbir, a delivery truck driver, said he is looking to trade in his Lexus LS 400 for a smaller car.

In downtown Chicago, Sharon Cooper spent $52 to fill up three-quarters of the tank in her Toyota Highlander SUV. She said she tries not to let the prices get to her, although she too is changing her habits and buying a bike to commute to work.

Energy Department data show Americans used about 1 percent less gas in the four weeks ended April 11 than they did a year earlier.

That change, while not drastic, is significant, Mariano Gurfinkel, project manager at the Center for Energy Economics at the University of Texas at Austin, who expects per-capita demand to drop further this summer unless gas prices fall.

Americans will continue to drive, but some may change their summer vacation destinations as gasoline costs continue to make a bigger dent in their pocketbooks, Gurfinkel said.

Crude oil rose Monday after the 150,000-ton tanker Takayama was struck off the coast of Yemen as it headed for Saudi Arabia, its Japanese operator, Nippon Yusen K.K., said.

Kyodo News agency reported that the Japanese tanker was fired on by a rocket launcher from a small boat. None of the ship's 23 crew members was injured, but several hundreds of gallons of fuel leaked before a 1-inch hole in the tanker's stern was repaired, the company said.

Meanwhile, militants in Nigeria renewed their attacks on oil facilities in the south of the African nation. Nigeria is a major supplier to the U.S., and attacks in the past two years have cut nearly a quareter of the country's oil output.

"There's clearly some geopolitical tension in the market," said Mark Pervan, senior commodity strategist at the ANZ Bank in Melbourne, Australia. "This will die down, but the market is pretty jittery at the moment."

An OPEC official also said over the weekend that the group was not likely to increase production. The official said oil prices would likely rise and said OPEC might boost production if the price pressure was because of a supply shortage, something he doubted.

In other Nymex trading, heating oil futures rose 1.9 cents to settle at $3.3114 a gallon while gasoline futures fell about a penny to settle at $2.9791 a gallon. Natural gas futures jumped 14.6 cents to settle at $10.733 per 1,000 cubic feet.