New York - Retail gasoline prices in the United States pushed past a record high Thursday as Canadian prices continued to rise as well, although a bit more slowly because of the strong Canadian dollar.
U.S. prices moved over US$3.40 a gallon -- about 89 cents US a litre -- on Thursday, fulfilling expectations that they'll keep climbing toward US$4 a gallon as the summer driving season approaches.
Oil prices, meanwhile, fluctuated after setting yet another record high overnight. Analysts said investors were locking in gains from crude's ongoing rally and trying to determine whether prices have more room to rise.
At the pump, the average U.S. price of a gallon of unleaded gas rose 1.9 cents overnight to $3.418 a gallon, according to a survey of stations by AAA and the Oil Price Information Service. Diesel fuel also hit a new record of $4.146 a gallon after jumping 1.7 cents overnight, the survey said.
In Canada, gasoline prices are C$1.16 and higher in most markets and some industry analysts expect the cost of fuel to increase to between $1.30 and $1.40 a litre this summer.
However, prices appear to be rising more slowly in Canada in part because the high value of the Canadian dollar is offsetting some of the higher costs from rising oil prices.
Since crude oil is traded in U.S. dollars, a rising loonie against the American greenback has eaten into a part of the increase. As well, gasoline imported from the United States is cheaper to Canadian consumers when the loonie soars.
The rising cost of gasoline and diesel is pressuring North American consumers, who gas up their cars and buy goods that grow more expensive because of rising transportation costs. And their plight will only worsen; many analysts expect average U.S. gas prices to peak close to $4 a gallon later in the spring. Prices are already that high in some parts of the country, including California.
With gas reaching another milestone, analysts are questioning whether consumers, who have already curtailed their driving over the past month, will cut back further in response to rising prices. They point to the trends seen last year in California; when prices soared past $3.40 a gallon in the state last November, demand plummeted by 3.7 per cent.
Some analysts see California's experience as a sign that a plunge in national demand could also occur. Still, when summer arrives, demand will rise regardless of how high prices have soared.
"July and August will be very busy,'' said Tom Kloza, publisher and chief oil analyst at the Oil Price Information Service in Wall, N.J. "If you've got a vacation planned to Disney World or something, you're still going to take the vacation.''
This expectation of higher summer demand is boosting gas prices now, but prices are also rising because refiners are switching over from winter grade gasoline to the more expensive but less polluting fuel they're required to sell in the summer. That has pulled supplies lower lately as refiners try to sell off all of their winter fuel. Short supplies of key blending components needed for summer gasoline are exacerbating the problem.
Oil, meanwhile, has spiked higher on concerns about falling supplies and rising global demand, and as a weaker dollar has attracted speculative investors to crude futures. Crude rose to a new trading record of $115.54 overnight as the dollar fell to a new low against the euro, but later pulled back when the dollar strengthened.
Light, sweet crude for May delivery fell 60 cents from Wednesday's close to US$113.85 a barrel on the New York Mercantile Exchange, but alternated between gains and losses.
Commodities such as oil are seen by many investors as a hedge against inflation and a weaker dollar. A falling dollar also makes oil cheaper to overseas investors. The effect tends to reverse when the U.S. currency strengthens.
Crude prices have jumped more than four per cent this week due in part to the falling dollar, but also because of supply and demand concerns in the U.S. and abroad. Domestic gasoline and crude supplies fell last week. Meanwhile, Russian oil production dropped this year for the first time in a decade, according to an International Energy Agency report. China's economy continues to grow at a breakneck pace, demanding more oil and fuel. And the Federal Reserve is expected to cut interest rates at least twice more this year, which will further weaken the dollar.
The combination of all these factors will push oil prices even higher in coming weeks, said James Cordier, president of Tampa, Fla., trading firms Liberty Trading Group and OptionSellers.com.
"I think we're going at least to $125,'' he said. "That'll probably translate to about $3.80 (a gallon) at the pump.''
In other Nymex trading Thursday, May gasoline futures rose 1.88 cents to settle at a record $2.9578 a gallon after earlier rising to a trading record of $2.9749 a gallon. May heating oil futures fell 1.56 cents to settle at $3.2674 a gallon. May natural gas futures fell five cents to settle at $10.383 per 1,000 cubic feet.
In London, Brent crude futures fell 23 cents to settle at $112.43 a barrel on the ICE Futures exchange.
