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Analysts saying gas prices haven't peaked

BY TOM INCANTALUPO | tom.incantalupo@newsday.com

7:30 PM EDT, May 7, 2008

Gasoline prices seem to be peaking for the time being amid comfortable supplies and rising imports, but as crude oil continues creeping upward, the betting among most experts is that motorists haven't seen the worst yet for this driving season.

"I think we'll see another 10 or 15 cents [a gallon]," said Andy Lipow, president of Houston consulting company Lipow Oil Associates, who expects prices to peak for the season just after Memorial Day.

The U.S. Department of Energy was a bit more pessimistic, forecasting this week that retail prices would peak at a national average of $3.73 a gallon in June -- about 23 cents higher than they are now.

Long Island prices are far beyond that already, with regular averaging $3.864 a gallon Wednesday in a survey by the AAA.

Still, new Energy Department figures out Wednesday provide reason for some optimism. Gasoline inventories last week rose by 18.4 million barrels from a year earlier and about 800,000 barrels from a week earlier, to 211.9 million barrels, the department said.

Imports of gasoline, attracted by high prices here, were 1.5 million barrels a day last week, up from 1.4 million the week before and 1.2 million a year earlier.

Meanwhile, demand for gasoline in this country is falling, running about 1.5 percent behind last year, according to MasterCard Spending Pulse, compared with what had been steady growth in demand of 1.5 percent a year. Demand last week, in fact, was almost 6 percent lower than a year earlier, MasterCard said.

But the price of crude oil, gasoline's main ingredient accounting for 74 percent of its price -- has doubled in the past year and continues rising. It set another record Wednesday -- $123.57 at the close of floor trading on the New York Mercantile Exchange.

Reasons for that increase include growing demand in developing nations, especially China, the Middle East, Brazil, Russia and India, so that even though Americans are cutting back, worldwide demand for crude is expected to grow by 1.2 million barrels a day this year over last. And world output isn't growing fast enough to meet it.

Other factors include violence in Nigeria, a major oil producer, and a decline in the U.S. dollar relative to certain other currencies, which has spurred investments in commodities as a hedge and also made oil, which is priced in dollars, cheaper for foreign investors.

"The oil supply system continues to operate at near capacity and remains vulnerable to both actual and perceived supply disruptions," the energy department said.

The investment house Goldman Sachs is predicting crude oil at between $150 and $200 a barrel in the next six months to two years. Even an increase to $150 would increase gasoline prices by another 75 cents a gallon, Lipow said.

This story was supplemented with wire service reports.