Gas hits record, won't ease up

Tennessee prices remain below $4 U.S. average
By JOHN WAGGONER • USA Today • June 9, 2008

U.S. gasoline prices shot above $4 a gallon for the first time Sunday, and drivers will be shelling out even more for gas this week.

The national average price of a gallon of regular gas hit $4.005 Sunday, up from $3.988 Saturday, and $3.105 a year ago, according to the American Automobile Association.

But that's just the average. Drivers in California are paying an average of $4.44 a gallon, AAA says. In Visalia, Calif., a gallon of regular unleaded averaged $4.50.
Missouri had the lowest average price, at $3.80.
Tennessee was below the national average at $3.85 on Sunday. The average price in Nashville was $3.88.

A gallon of diesel averaged $4.762, versus $2.902 a year ago. Premium gas averaged $4.80, vs. $3.605 last year.

The rise in gas prices follows an unexpected $10.75 jump in the price of oil Friday, to a record close of $138.54 a barrel. It had spiked up as high as $139.12.

Sending oil soaring:
• Israel's transportation minister said Friday that an attack on Iran was "unavoidable." Iran, which produces 4 million barrels of oil a day, is the world's second-largest producer, behind Saudi Arabia .
• The U.S. dollar fell. A euro cost $1.5768 Friday, versus $1.5593 Thursday. Oil is priced in dollars, and when the dollar falls in value, oil prices rise.
• Investment bank Morgan Stanley predicted that oil prices would hit $150 by July.

Trading is also a factor

Experts also blamed a technical factor, called short-covering, for the big rise in oil prices. Making a bet on falling prices is called shorting. Traders who take short positions in the futures market have to buy oil futures to close their positions.

Sometimes that leads to a big spike upward in prices. "Short sellers have gotten squeezed," said Michael Hoover, manager of Columbia Energy and Natural Resources fund.
"I think anyone who says they are not shocked would be being untruthful," said Fred Fromm, manager of Franklin Natural Resources fund.

For roughly two decades, prices have tapered off in late May, sometimes dropping far enough to provide motorists a significant summer respite.

"We are cautioning gas station owners around the country not to overreact to one day of trading," said AAA spokeswoman Yolanda Cade.

A slowdown in price increases last week prompted predictions that although the timing seemed late, the pattern would reassert itself. But even if fuel prices fall a bit this summer, that's unlikely to last long.

"I still worry about late July and August when there will be plenty of hurricane hype," Tom Kloza, veteran analyst at consultant Oil Price Information Service, said in an e-mail last week.
Forecasts of hurricanes send prices up because energy operations in the Gulf of Mexico could be slammed. After Hurricane Katrina in 2005, prices rose to an average of about $3.06, a record at the time.