Recovery Speculation Boosts Gasoline

By CHRIS KAHN

posted: 124 DAYS 7 HOURS AGO

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NEW YORK (July 24) - Retail gas prices are increasing around the country even though U.S. supplies have swelled for six weeks in a row.

Pump prices rose the final three days this week, including a half cent Friday, to a new national average of $2.47 a gallon, according to auto club AAA, Wright Express and Oil Price Information Service. A gallon of gas is still more than 20 cents cheaper than it was a month ago, and it's priced at a major discount to last year, when the national average was above $4.02.

But with so much unused gasoline in storage, analysts said prices should be heading even lower.

That doesn't seem to matter, with a lot of gasoline futures being bought up on the belief that a number of rosy earnings reports from major corporations hint at a coming rebound in demand from consumers.

Gasoline futures on Nymex have risen every day since July 13 and prices have jumped 28 cents in less than two weeks.

"There's just a crowd behavior, and it's forcing prices above what it should be," said Fred Rozell, retail pricing director at Oil Price Information Service. "People are acting emotionally."

Crude prices also rallied this week as the Dow Jones industrial average increased 11 percent in the last nine days and passed the 9,000 mark for the first time since January.

Benchmark crude for September increased Friday, adding 97 cents to $68.13 a barrel on the New York Mercantile Exchange. Oil prices climbed $1.70 per barrel this week.

Like gasoline futures, crude moved higher this week as the stock market rallied and companies reported strong second-quarter earnings.

"We haven't seen demand increase yet, but all the good news about the economy seems to be adding fuel to the fire," said Gerard Rigby, an energy analyst with Fuel First Consulting in Sydney. "Just the fact that things are improving is enough to change the sentiment of a lot of people."

Most second-quarter corporate results have beaten analyst expectations, but reports late Thursday from Microsoft Corp., American Express Co. and Amazon.com disappointed investors, giving a mixed picture about a recovery.

The Organization of Petroleum Exporting Countries says it's concerned about the build in gasoline supplies in the U.S., and how that may eventually force crude prices lower than its members want. The group was able to cinch production earlier this year and prices rebounded, but some members have losened the spigots for badly needed cash.

OPEC crude production increased in April, May and June, according to the organization's July report.

In that period, Angola leapfrogged Nigeria as Africa's largest oil producer. Nigeria's production has been slowed as militants atack its energy infrstructure.

In other Nymex trading, gasoline for August deliverypo fell less than a penny to $1.9076 a gallon and heating oil added 1.16 cents to $1.776 a gallon. Natural gas for August delivery jumped 11.9 cents to $3.669 per 1,000 cubic feet.

In London, Brent prices rose 76 cents to $70.01 a barrel on the ICE Futures exchange.

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Associated Press writers Pablo Gorondi in Budapest and Alex Kennedy in Singapore contributed to this report.

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2009-07-24 13:55:13