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Gas prices unlikely to top $3 this summer

By Chavon Sutton, staff reporter


NEW YORK (CNNMoney.com) -- Nationwide gasoline prices are not expected to go much above $3 a gallon on average this summer, unless there is a demand surge or severe shock in supply, analysts said Tuesday.

At about $2.90 a gallon, the average price for a gallon of unleaded gas is 10% higher than it was in January and 40% more than this time last year, according to motorist group AAA. Some analysts say the ramp-up in prices is due to market forces that make it more profitable to produce gasoline.

"In general, gasoline prices in the spot and futures markets have been relatively robust," said Gianna Bern, president of Brookshire Advisory and Research. "Production of gasoline has been profitable for the industry."

Other analysts say the rise in prices is pretty typical for this time of year, which marks the nascent stage of the summer driving season in the United States, the world's largest energy consumer.

"Gasoline prices are very tidal, and high tide almost always comes in April and May," said Tom Kloza, chief oil analyst for Oil Price Information Service. "The high-water mark for the gasoline futures market is around May 10, and that trickles down to retail by Memorial Day."

Whatever the cause, analysts agree that consumers -- with fresh memories of 2008's record $4 a gallon gas -- shouldn't expect the same pain at the pump this year. They estimate prices will peak within a tight range of around $3 a gallon.

"I don't think there's going to be a lot of volatility in gas prices this summer unless there's some supply disruption from the [Gulf of Mexico] oil slick, but that's not all that likely," said Andrew Lebow, a commodities broker for MF Global.

Although gas prices in some states such as Idaho, Washington, and New York have already hit the $3 mark -- Hawaii and Alaska are at $3.50 -- historically high crude oil supplies coupled with excess capacity at U.S. refineries should keep a cap on prices.

Kloza says that prices could even drop by mid-summer. "There's plenty of crude and U.S. refinery capacity," he said. "I wouldn't be surprised if we were down to $2.75 a gallon [on average]."

Although fears about the costly Gulf of Mexico oil spill and its impact on gasoline prices have surfaced, analysts say only a major surge in demand or a shock to supply, brought on by a geopolitical event, would be catalysts for much higher gasoline prices. The likelihood of those events, they say, is relatively low.

"The oil spill is an incredibly tragic story, a compelling political and environmental story, but what you pay at the pump has nothing to do with the oil spill," said Kloza. "You would need a geopolitical event -- a military threat in the Persian gulf -- to see $3.50 to $4 a gallon gas" this summer. To top of page

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