Gasoline pump prices rise on oil and corn rallies

AP News
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Posted: Oct 12, 2010 5:41 PM
Gasoline pump prices rise on oil and corn rallies

Drivers have seen gas pump prices jump by nearly a dime a gallon in the past week because of a rally in prices for oil and corn, from which the gas additive ethanol is made.

Yet, the price hike is probably temporary because traders will have a difficult time ignoring fundamentals: demand has fallen, supplies are plentiful and consumers are holding on to their cash as they continue to worry about the economy, said Tom Kloza, publisher and chief oil analyst at Oil Price Information Service.

"I think we're going to top out pretty close to where we are," he said. "There will be a bias for gasoline prices to come off a little bit."

The national average for a gallon of regular gasoline was $2.811 on Tuesday, according to AAA, Wright Express and Oil Price Information Service. That's almost 8 cents more than a week ago and nearly 33 cents more than a year ago.

In a separate survey released Tuesday, the Energy Department said the national average for a gallon of unleaded gasoline was $2.819 a gallon on Monday, up 8.7 cents from Oct. 4 and 33 cents from a year ago.

Motorists in the West paid the most, averaging about $3.03 a gallon. Drivers paid an average of $3.10 a gallon in Los Angeles and $3 a gallon in Seattle. Gulf Coast travelers saw the cheapest prices, averaging $2.674 a gallon, the department's Energy Information Administration said. Drivers paid $2.64 a gallon in Houston and $2.868 a gallon in Miami.

A weekly survey by SpendingPulse found retail gasoline sales declined a little less than 1 percent last week from the week before across much of the country. Consumption is up slightly from a year ago.

Pump prices began to climb last week as traders bought more oil as the dollar grew weaker against other currencies. Since oil is priced in dollars, it becomes more attractive to investors with foreign currencies when the dollar falls. In addition, the price of corn -- used to make ethanol -- has hit two-year highs because of worries about tight global supplies.

Oil prices retreated for a second day Tuesday, as the Federal Reserve suggested it could do more to stimulate the economy. Benchmark crude for November delivery fell 54 cents to settle at $81.67 on the New York Mercantile Exchange.

Walter Zimmerman, chief technical analyst at the brokerage and analysis firm ICAP, says the two most important factors affecting energy prices are the stock market and the dollar. "It's a very, very dramatic impact," he said. "If the dollar goes down, energy prices will go up regardless of anything else. It costs the average American every time they fill up their tanks."

On Tuesday the Fed released details of its September meeting. While still short on specifics, the central bank indicated that Chairman Ben Bernanke and colleagues have nearly agreed on what steps to take to boost the economy. The dollar fell again after the Fed minutes were released. If the Fed acts next month to buy government securities, as many expect it will, the dollar will be pushed lower.

Kloza and other analysts believe the price of oil already reflects whatever action the Fed may take, since traders began speculating about the Fed's plans immediately after the September meeting.

Stocks initially lost some ground on Tuesday but rose a little after the Fed minutes came out. The Dow Jones Industrial Average closed up about 30 points. The NASDAQ and the S&P 500 were slightly higher as well.

In other Nymex trading in November contracts, heating oil fell 1.65 cents to settle at $2.2625 a gallon, gasoline dropped 4.16 cents to settle at $2.1239 a gallon and natural gas rose 2.8 cents to settle at $3.629 per 1,000 cubic feet.

In London, Brent crude fell 22 cents to settle at $83.50 a barrel on the ICE Futures exchange.

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Associated Press writers Jonathan Fahey in New York, Barry Hatton in Lisbon, Portugal, and Alex Kennedy in Singapore contributed to this report.