Spike in gasoline prices might be just the start

Gasoline prices are up sharply in what could be the start of a wild ride for motorists in 2013.

On Thursday, prices had jumped 14 cents overnight in some parts of the metro area, to an average $3.39 a gallon, and are up more than 25 cents in the past week. The $3-a-gallon prices common in the area at the start of the year have vanished, and further increases are expected.

So just as paychecks are shrinking because the Social Security withholding is going up, people also are losing some of the extra cash they had in their wallets since gas prices started dropping last fall.

Analysts still are hoping gas prices over the course of the year could be lower than the average for 2012. But recent unrest in the Middle East and other factors have pushed prices higher than a year ago and increased prospects for more volatility this year.

Steve Mosby, vice president of Admo Energy, which manages risk and buys fuel for gas stations, said prices could peak in the spring around 50 cents a gallon higher than now.

“My world is getting more complex,” he said.

Much of the recent spike has been attributed to terrorist actions in Algeria, along with turmoil in Egypt and Israeli tension with Syria, pushing up oil prices. The U.S. economic recovery, despite stalling in the fourth quarter, also could boost demand and tighten supplies. And China’s economic picture is looking brighter again, further increasing global demand.

Refineries also are approaching their annual switch to summer fuels, including a special boutique fuel in the Kansas City area. That can tighten supplies and make the gas markets jittery — and give refineries a chance to charge more.

In fact, refinery margins — the difference between the price of crude oil and the wholesale cost of gas — also increased this month. U.S. refineries able to tap cheaper crude from Canada and North Dakota have seen those margins rise by at least 17 cents a gallon since early January. Others using more expensive oil such as Brent crude have seen margins go up, but not as much.

Many oil companies were already doing well financially. Valero Energy on Tuesday said operating income in the fourth quarter of 2012 was $1.6 billion, up from $167 million a year ago. It mainly credited higher margins for the results.

Higher oil prices are also being passed along. The U.S. is producing more oil, but what happens overseas still matters and affects what U.S. motorists pay at the pump. The recent attack on the Algerian natural-gas facility raised concerns about oil supplies in the region and that increased the price of oil used by U.S. refineries, said Tancred Lidderdale, an analyst for the federal Energy Information Administration.

Oil prices are up about $6 per barrel since Jan. 16, enough to raise gas 15 cents a gallon.

Last year, gasoline averaged $3.63 nationally. The Energy Information Administration in early January predicted that would come down to $3.44 a gallon for 2013, although that estimate could be raised if oil rises more than expected.

And the Oil Price Information Service, which tracks and analyzes fuel markets, said this week it still thinks the national average price will be lower this year than last.

But that doesn’t mean smooth going for motorists. The oil price service also thinks prices will peak at $3.90 a gallon in the spring before coming back down.

Where that price settles for sure remains to be seen, but it will affect consumers. Nationwide gas prices averaged $3.85 in September and fell to $3.31 in December. That drop meant an extra $50 a month for a household with two cars. If that had persisted in 2013, it would have been enough to offset about more than one-third of the average increase in the payroll tax this year.

But the windfall, at least for now, is gone.