Gas Prices Rise, as Average Hits $3 a Gallon

Gas prices are seen at a service station May 7, 2007.

Gas prices are seen at a service station in New York City. A survey by AAA shows the average price at the pump nationwide hit $3 a gallon Wednesday. Chris Honda/Getty Images hide caption

itoggle caption Chris Honda/Getty Images

The International Energy Agency warns that oil supplies will barely keep pace with demand in the next five years. With little oil to spare, prices are likely to remain volatile. Lindsay Mangum, NPR hide caption

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itoggle caption Lindsay Mangum, NPR
Chart: Comparing Global Gas Prices

Gasoline prices are on the rise again, after falling for the last six weeks. A survey by AAA shows the average price at the pump nationwide hit $3 a gallon Wednesday, just in time for the busiest part of the summer driving season.

"Most of the recent increase has been due to problems in the Midwest," says AAA spokesman Geoff Sundstrom. "Specifically, the loss of a refinery in Coffeyville, Kansas, that was flooded and will be out of commission for the rest of the summer, and a continuing problem at a big refinery in Whiting, Ind."

That BP refinery in Whiting has been having problems for several months. It's one of the nation's biggest and oldest refineries, originally built by the Standard Oil company more than a century ago to produce kerosene. The refinery so important to the city on the south shore of Lake Michigan that Whiting's slogan is "Refining the heart of community."

Kathleen Cunningham runs an ice cream parlor in Whiting, about a mile from the refinery. She says rising gas prices there haven't cut into her ice cream sales. But she still hears plenty of grumbling from her customers.

"Yes, they all crab about how expensive it is," she says.

Cunningham herself is lucky. She hasn't had to buy gasoline in about two weeks.

"I bought a Toyota this year and I'm getting really good mileage," she says. "But everybody in my family has American-made cars and they're gas guzzlers. And it's ferocious — hard on everybody."

Even so, the Energy Department says American are buying more gasoline than ever. Demand in the last four weeks is up 1.4 percent from this time last year.

"Surprisingly, we haven't seen much in the way of consumer reaction to $3 and even $4 gasoline," says oil analyst John Kilduff of the brokerage group Man Financial. "We've had some record weeks over the past several months. And we're expecting to see big numbers continue now throughout the remainder of the summer."

Supply Not Seen Keeping Up with Demand

This week, the International Energy Agency warned that oil supplies will barely keep pace with demand in the next five years. Unless consuming nations cut back, forecasters say, the world is likely to see even higher prices for oil and gasoline. The only thing likely to reduce demand would be a slowdown in the global economy.

"The energy demand growth that we're seeing, not only from China but other Asian countries and the U.S., is on the back of the economy that keeps chugging along overall," Kilduff says. "Seventy dollars a barrel seems to be the new floor. I think consumers should get pretty used to $3 a gallon gasoline for the most part at the pump, if not higher."

Crude oil in the U.S. is already trading above $72 a barrel, and prices elsewhere are even higher. AAA's Sundstrom says rising prices for oil and gasoline are sending an important signal.

"America's energy future is very insecure," he says. "And as a society and certainly as consumers, we need to continue to do what we can to drive more fuel-efficient vehicles and decrease the amount of energy that we consume overall."

Sundstrom says it would take years for any new government fuel-economy standards to have a meaningful effect on overall demand. But he says consumers can help themselves more quickly by making wise choices when shopping around for a car.

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