Bad news on the fuel market

Uh-oh: Gas prices on the rise
After eighty-six consecutive daily declines, the average price of gas nationwide has now increased for the past two days. Have gas prices bottomed?

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Last Updated: December 14, 2008: 1:47 PM ET

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NEW YORK ( — Gas prices rose for the second consecutive day following eighty-six consecutive declines.

The motorist group AAA reported Sunday that the national average price for a gallon of gas rose to $1.663 a gallon from $1.66 the previous day. The reports are based on a daily survey of credit card swipes conducted for AAA. The average price of gas was $1.656, according to AAA’s Friday report.

During the nearly three months that gas prices were falling, prices decreased by $2.199 or 57 percent. The current national average is now $2.451 below or 59.6 percent off the record high price of $4.114 that AAA reported on July 17, 2008.

Two states still have average regular unleaded gas prices of $2 and higher. The highest gas prices are in Alaska, at $2.689 a gallon. The remaining 48 states and the District of Columbia have regular unleaded gas prices below $2. The cheapest gas prices are in Missouri, at $1.477 a gallon.

On Friday, Jason Toews, co-founder of GasBuddy in Minneapolis, warned that gas prices may be bottoming out.

Lower gas prices are starting to spur demand in many areas, which could mean gas prices will pop back up again when the spring and summer driving season hits next year, according to Toews.

“Enjoy the gas prices while they’re here,” he said.

Since July, the price of gasoline has fallen along with the price of crude oil, gas’s main ingredient. Crude has fallen more than $100 a barrel since July as investors worried that the U.S. economy was consuming less fuel.

However the decline in the price of crude may be setting us up for a gas price “super spike” in two to four years, said Toews.

“A lot of oil fields are not economical at these lower prices,” he said.

As crude prices have fallen, oil companies have cut back on exploration, and shut down production at expensive operations like the oil sands in Western Canada.

“Once demand comes back, it will make supply even more tight,” said Toews.

And the greater the current recession is, the greater price spike we may see in the future, since the lower oil prices are, the more oil companies cut back, he added.

Diesel: The price of diesel fuel, which is used in most trucks and commercial vehicles, continued to slide, however.

The average price of diesel dropped to $2.552 a gallon, according to AAA’s Sunday survey, from a nationwide average of $2.561 the previous day.

Diesel prices have fallen more than $2 a gallon since hitting a record high of $4.845 on July 17.

Ethanol: The price of E85, an 85% ethanol blend made primarily from corn, also fell slightly, to $1.521 a gallon in Sunday’s survey from $1.527 a day earlier, according to AAA.

E85 can be used in place of regular gas in specially configured “flex-fuel” vehicles, but it is not readily available in some states.

The AAA figures are state-wide averages based on credit card swipes at up to 100,000 service stations across the nation. Individual drivers may see lower fuel prices in different areas of each state.

~ by sunil khemaney on December 15, 2008.

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