Gas: $3.51, Oil: $119+

Record average retail, crude prices making $4 fuel more of a reality

NEW YORK -- Gas and oil prices pushed further into record high territory Tuesday, with retail gasoline reaching a national average of $3.51 for the first time and crude nearing $120 as the dollar fell to a new low against the euro, reported the Associated Press.

At the pump, the national average price of a gallon of regular gas rose 0.8 cents Tuesday to $3.511, according to a survey of stations by AAA and the Oil Price Information Service. Prices for diesel—used to transport most food, industrial and commercial goods—also rose overnight to a new record of $4.204 a gallon.[image-nocss] p>

Gasoline prices are nearly 66 cents higher than last year, when they peaked at a then-record of $3.23 in late May, and have prompted many analysts to raise their estimates of where gasoline is going to go.

"I wouldn't rule out the possibility that we could get to $4," Antoine Halff, an analyst at Newedge USA LLC, told AP.

Other analysts are less certain. Fred Rozell, retail pricing director at OPIS, said he thinks gasoline prices will rise only another 10 cents to 20 cents nationally. That would mean they would peak near $4.15 a gallon in California, where prices are typically highest, and around $3.50 in New Jersey, where they are typically lowest.

Fuel prices are rising for many reasons, including oil's record run. Light, sweet crude for May delivery rose to a new trading record of $119.90 before retreating to settle up $1.89 at a record $119.37 a barrel on the New York Mercantile Exchange. The contract expired after the Nymex closed, which contributed to its spike higher as investors scrambled to square bets. June crude futures, which now become the focus of trading, rose $1.44 to settle at $118.07 a barrel, nearly $2 shy of the $120 level.

Many investors see commodities such as oil as a hedge against inflation and a falling dollar, said AP. Also, a weaker greenback makes oil cheaper for investors overseas.

Oil also rose on concerns about supply constraints overseas. A Royal Dutch Shell PLC joint venture declared force majeure on April and May oil delivery contracts from a 400,000-barrels-per-day (bpd) Nigerian oil field due to a pipeline attack last week. The move protects the company from litigation if it fails to deliver on contractual obligations to buyers.

In Mexico, oil production slipped 7.8% in the first quarter to 2.91 million bpd as output at the country's oil fields waned, state oil company Petroleos Mexicanos said. In Scotland, workers at Ineos PLC's 196,000-bpd Grangemouth refinery and petrochemical plant threatened to strike over changes to an employee pension plan.

While gasoline prices are following oil futures higher, they are also rising because supplies are falling. Refiners are in the process of switching over from making winter grade gasoline to the more-expensive, less-polluting, form of the fuel they are required to sell in summer. That is pushing supplies down as producers try to sell off all of their winter gasoline.

Gasoline supplies are also being hurt by low profit margins. Refiners have to buy the crude they turn into fuel, but falling demand for gasoline has hurt their ability to raise gas prices as much as they would like. While the average profit margin on gasoline hovers above $10, analysts say margins have gone negative in some parts of the country in recent weeks. In those cases, refiners were actually losing money on every gallon of gas they made. Many refiners have reacting by producing less gas.

"Very high crude prices can constrain gasoline supplies as it hurts the margins," Halff said.

In other Nymex trading Tuesday, May gasoline futures rose 3.73 cents to settle at $3.0164 a gallon after earlier rising to a trading record of $3.025, while May heating oil futures rose 0.55 cent to settle at $3.3169 a gallon after earlier rising to their own trading record of $3.35. In London, June Brent crude rose $1.52 to settle at $115.95 a barrel on the ICE Futures exchange.

Also, for more analysis,click here to view the most recent Lundberg Survey gasoline and oil price update for CSP Daily News.