High Oil Prices Nudging Gasoline Prices Upward

The U.S. gasoline price average remains below its record levels, but expensive crude is nudging it ever upward.

The American Automobile Association reports the price of gas steadily increased in the past year. At a national average of $3.51 per gallon on Monday, prices are 38 cents higher than last year -- and 12 cents higher than a month ago.

What is driving the upward trend? Well, it depends on where in the United States you live, but in general terms, it's the price of oil and refinery output. Because gasoline is a refined product of crude oil, the upward trend reflects the overall uncertainty in the world economy as well as the upward trend in crude prices.

The price for a single barrel of oil in the U.S. on Wednesday was $101.79, the third time the price closed above $100 since Jan. 19.

In London, Brent crude traded at $118.91 a barrel. It is this spread that makes all the difference.

Avery Ash, AAA's manager of regulatory affairs, said refineries in the U.S., especially along the East Coast, need to purchase global crude products, including Brent, in order to refine gasoline.

There isn't the necessary infrastructure, Ash said, to transport U.S. crude which is refined mostly in the Midwest, to those located along either coast. East Coast refineries, therefore, pay for more expensive global crude to make gasoline.

As a result, the price goes up.

At $3.85, New York average gasoline prices are closing in on their all-time record of $4.30 in July 2008. The same is true for Pennsylvania, Vermont, Massachusetts and Maine.

In an interesting reversal, states like Alaska, Michigan and Ohio, closer to Midwestern refineries have seen their gas prices drop by as much as 19 cents, helped in part by of a supply backlog in Oklahoma, Ash said.

Crude imports from Canada and ramped-up production in the U.S. have created a glut which has insulated domestic oil and helped deepen the difference between U.S. crude prices with those of Brent crude.

This difference is also driving some refineries to shut their doors, especially on the East Coast. The extra cost has already made ConocoPhillips and Sunoco back out of the region, closing down three refineries comprising 50 percent of the region's refining capacity.

To add insult to injury, drivers are not taking to the roads as much as they used to in recent weeks. Demand for gas in the last four-week period, according to last Wednesday's weekly Department of Energy report, averaged 11.116 million barrels per day, its lowest level since April 25, 1997.