Saturday, April 22, 2006

Gas Breaks the $3 Barrier

Sacromento Bee

By Dale Kasler
April 21, 2006

Prices are near September record, with no relief near.

The dreaded $3 gallon of gas became reality across California on Thursday.

The statewide average price jumped 3 cents to $3.02 for a gallon of self-serve regular, the highest it's been since the post-Hurricane Katrina gas crisis, according to AAA. That's within 3 cents of the record set last September.

Sacramentans were paying $2.90 a gallon. Motorists were paying an average of $3.12 for self-serve regular in Santa Barbara, a record for the city and the highest among the 25 metropolitan areas surveyed daily by AAA.

Prices are expected to continue rising, although it's not clear when and where they'll peak. Oil prices have shot up because of violence in Nigeria and the possibility of war in Iran. On Thursday, after briefly hitting a record $72.49 a barrel, prices eased off after Shell announced it will resume oil production in late May at a key facility that was damaged by Katrina.

Oil closed at $71.95, down 22 cents, on the New York Mercantile Exchange.

Even with that lull in crude costs, analysts expect gas prices to keep going up for the foreseeable future. A nationwide shortage of refining capacity will put upward pressure on gas prices even if crude prices fall. Gas prices will likely peak in late spring or early summer.

Rising energy prices are making economists increasingly nervous. Last fall, when prices shot up after Katrina, economic output slowed down across the United States.

The latest spike "is certainly not a recession-making event, but it could have an effect on some industries in California," said Howard Roth, the state's chief economist.

Among them is tourism.

"Absolutely. Everything from airline fuel to Mom and Pop taking the kids on vacation," said Gary Carr of PKF Consulting, a hospitality consulting firm.

But Sean Comey, spokesman for AAA of Northern California, said he thinks tourism will hold up pretty well. While gas price spikes do prompt motorists to conserve somewhat, it's unlikely that Californians will cancel their vacation plans, he said.

"Most people, despite the high gas prices, tend to think a driving vacation is a good value," he said.

Meanwhile, farmers are feeling the effects.

"It's huge, it's absolutely huge," said Joe Martinez, a Yolo County almond farmer whose diesel fuel costs are increasing. Diesel hit $3.05 in Yolo on Thursday.

Martinez, president of the county Farm Bureau, said higher oil prices will also mean costlier fertilizer, plastic piping and other inputs. "Farmers have to eat any increased costs," he said.


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