Gasoline pump prices reached a 28-month high Wednesday even though oil and gas supplies in the U.S. continue to grow and demand for gas is weak.
The national average for regular gasoline rose to $3.133 a gallon. That's about $1.20 more than the price at the pump two years ago, according to AAA, Wright Express and the Oil Price Information Service.
Just eight states have average prices less than $3 a gallon. The cheapest is $2.94 a gallon is in Missouri. Hawaii has the highest average of $3.746 a gallon.
Tom Kloza, OPIS chief oil analyst, predicted gas prices will range from $3.50 to $3.75 a gallon this spring and then drift lower, to between $3 and $3.40 a gallon.
"I do believe that this year is front-end loaded," Kloza said. "I think that perhaps the first third of the year sees higher retail prices for gasoline and diesel . than the middle or final thirds."
Average gas prices have climbed steadily from about $2.80 a gallon in November even though consumer demand has been weak and inventory levels remain high. The Energy Department said Wednesday that supplies of crude and gasoline both rose again last week while distillates, which include heating oil and diesel, declined. All three products are at or above the average range for the past five years.
Demand for gasoline remains weak and may be getting weaker. In its weekly survey Mastercard SpendingPulse said gasoline consumption across the country fell 3 percent last week compared to the week before and suggested that higher prices may be discouraging driving and trips to the gas station.
Higher gas prices are a result of several factors that have created a bottleneck for supplies of West Texas Intermediate crude stored at Cushing, Okla., which is the delivery point for oil traded on the New York Mercantile Exchange. Oil supplies at Cushing are just short of an all-time high.
More North American oil is being produced and delivered to the Cushing facility, but existing pipelines can't move all of the crude out to refineries. And there are no pipelines to Gulf coast refineries, which have the capacity to produce about half the nation's daily supply of gasoline.
In addition the price of Brent crude, used by refineries on the East Coast, is soaring. Although it's produced in Europe's North Sea, Brent is used to price oil produced in other parts of the world, including South America and Africa, which is shipped to refineries in the U.S.
The prices of Brent and WTI climbed on Wednesday after Israel's foreign ministers said that Iran will send two warships through the Suez Canal on the way to Syria. The news added to tension in the region and "absolutely moved markets," according to PFGBest oil analyst Phil Flynn. He said traders are worried that spreading unrest in the Middle East will disrupt oil production and shipments in the region.
"The face of the Middle East is changing in pretty dramatic fashion in a very short period of time," he said. "The risk to supply is going up."
On the Nymex benchmark West Texas Intermediate crude for March delivery rose 67 cents to settle at $84.99 per barrel. Brent crude rose $2.14 to settle at $103.78 per barrel on the ICE Futures exchange.
In other Nymex trading, heating oil rose 4.58 cents to settle at $2.7748 a gallon and gasoline gained 5.59 cents to settle at $2.5447 a gallon. Natural gas lost 5.5 cents to settle at $3.921 per 1,000 cubic feet.
Chris Kahn in New York contributed to this report.
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