Spring Fever at the Pump

There’s nothing unusual about gasoline prices rising at this time of year. There is about $70-a-barrel oil, however

It has become an annual rite of spring. Along with the rain and blooming flowers comes pain at the pump. Gas prices have risen between March and May in 21 out of the past 22 years. Like bears coming out of their winter retreats, refiners must stretch this time every year, replacing winter’s fuel formulation with newer, more environmentally friendly summer blends. During that transition prices traditionally spike.

But this year’s kickoff to the summer driving season is worse than most. Gas sold for an average of $2.72 a gallon on Apr. 17, up 31 cents from last month and 53 cents from this time last year. This spring’s sting is being fueled by other factors including a tense global oil market. Venezuela has seized an oil field from one foreign company, and cancelled another’s contract (see BW Online, 4/4/06, “Venezuela’s Seizure Ups the Ante”).

“PETRO-POLITICAL FEARS.” Nigerian production is still recovering from a peasant uprising, and Iran is threatening to launch suicide-bomber attacks if the U.S. interferes with its nuclear energy program. As a result, oil settled at a new high of $70.40 a barrel on Apr. 17. “It’s a combination of petro-political fears,” says Peter Beutel, president of energy risk-management firm Cameron Hanover. “It’s such a nervous market.”

The high crude prices are compounding a summer gasoline transition this year worsened by the phasing out of the additive MTBE — which was found to lead to groundwater contamination. It’s being replaced by ethanol, an additive made from corn (see BW Online, 3/16/06, “A New Spike at the Pump?”).

Business Week