Cheaper gas seen in 2007

Government sees prices topping out sooner than last year; predicts national average high of $2.87 a gallon.

By Steve Hargreaves, staff writer

NEW YORK ( -- Gasoline prices are expected to peak earlier and be about 11 cents lower this year compared to 2006, the government said Tuesday.

In its annual summer fuels outlook, the Energy Information Administration said nationwide average regular gasoline prices are expected to top out at $2.87 per gallon in May, compared with $2.98 per gallon seen last July.

The government sees lower gasoline prices peaking sooner than last year; predicts national average high of $2.87 a gallon.

"Although gasoline prices began their seasonal increase about a month earlier than usual, the rapid rate of price increase is projected to slow over the next few months." EIA said in its report.

Gasoline is expected to average about $2.81 a gallon this summer, down slightly from $2.84 in 2006, the EIA report said.

EIA's forecast was in-line with what other experts are predicting for the summer.

"We don't believe we will set a record," said Geoff Sundstrom, a spokesman for the motorist association AAA. "Prices should top out in May, then hopefully fall by Memorial Day weekend."

The slightly lower prices predicted this year are due mainly to lower prices for crude oil, according to EIA economist Tancred Lidderdale.

The agency is forecasting crude oil prices around $65 a barrel this summer, down from around $70 a barrel last summer, when war broke out between Israel and Hezbollah pushing oil prices to their all time non-inflation adjusted trading high of $78.40 a barrel.

Although crude prices are expected to fall by about 6 percent, refinery bottlenecks are expected to keep gasoline prices from falling more than about 1 percent, Lidderdale said.

Crude oil accounts for about half the price of a gallon of gasoline.

EIA's estimate is only seven cents higher than the average price of gasoline now, as reported by AAA. In some states the price of regular is already over $3 a gallon.

EIA said unexpected refinery maintenance this year eroded supplies and caused gasoline prices to spike sooner than usual.

Gasoline prices have risen for the last 10 weeks straight and are now 20 percent higher since the start of the year.

Strong demand, refinery problems, the looming summer driving season, and declining supplies as refiners switch to cleaner burning summer blends have all been cited as reasons for the runup.

Crude oil prices have also risen over the past few weeks, pushed higher mainly by political tensions with Iran.

Last year nationwide average gasoline prices fell just shy of the all time, non-inflation adjusted record of $3.06 a gallon set in September 2005 following Hurricane Katrina, according to AAA.

Adjusted for inflation, gasoline hit a peak of around $3.15 a gallon in early 1980, following the second Arab oil embargo and the Iranian revolution.

Yet people also earn a lot more now than they did in 1980, so by some measures what people spend now on gas is only half of what is used to be.

In 1980, the average American had to work 105 minutes to buy enough gas to drive the average car 100 miles, David Wyss, chief economist at Standard & Poor's, said in a study last year. By 2006, the average American needed to work only 52 minutes, thanks in part to better fuel efficiency but mostly due to higher wages.


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