LI gas costs up on oil price spike

By TOM INCANTALUPOtom.incantalupo@newsday.comJuly 14, 2011

Gasoline jumped 4.7 cents a gallon on Long Island in the past week, surprising some analysts, who blame rising crude oil prices and recent refinery outages in the United States.

Regular gasoline averaged $3.959 a gallon in Nassau and Suffolk counties Wednesday, the AAA said, representing a reversal of the decline from the recent peak of $4.284 May 12. Gasoline costs about a dollar a gallon more than a year ago.

Crude oil futures rose in trading for a second day Wednesday, settling at $98.05 a barrel, on a decline in U.S. supplies and word from Federal Reserve Board Chairman Ben Bernanke that it is considering further steps to stimulate the economy.

"There's a creeping tightness to crude oil supplies that I think will push prices over $100 pretty soon," said John Kilduff, a partner at Again Capital Llc in Manhattan, a hedge fund.

Tom Kloza, chief oil analyst at Oil Price Information Service, based in Wall, N.J., said new Fed actions could lower interest rates, sending more investors to commodities such as oil, increasing their prices.

"The unfortunate consequence of easy money so the economy can get kick-started is higher prices for all commodities and we're seeing that for most of July," he said.

Lower interest rates also can reduce the value of the dollar, which also increases prices of commodities such as oil that are priced in dollars.

Andy Lipow, president of Houston consulting company Lipow Oil Associates Llc, says he expects further increases at the pumps in coming weeks.

"Gasoline prices are rising because crude oil prices have been rising here as well as overseas and demand in the world is growing for petroleum productions in the face of some pretty significant supply disruptions," he said.

Prices have risen despite decisions last month by President Barack Obama and the International Energy Agency to release crude oil from their respective petroleum reserves. Lipow thinks commodities traders have taken those moves as further signs of tight supplies, prompting them to increase their holdings.

He says recent outages at refineries in Missouri, Ohio and Texas, accounting for about 3.5 percent of the nation's refining capacity, have crimped gasoline production.

"Unfortunately," said Lipow, "prices look like they're going to continue to rise another five to 10 cents a gallon over the next couple of weeks as a result of high raw material costs."