Prices at the Pump Still Climbing?

April 19, 2006 — -- In its weekly report on U.S. supplies of oil and gasoline, the Energy Department said that stockpiles of gasoline and crude oil had fallen during the last seven days -- bad news for those hoping for relief from high prices at the pump.

Commercial crude inventories -- the total available to the market outside the Strategic Petroleum Reserve -- fell by 0.8 million barrels. Gasoline stocks fell by 5.4 million barrels -- more than double the expected amount.

This is the seventh straight week of gas drawdowns, leaving the United States with gasoline supplies on the lower end of the average range for this time of year. During that time the country has seen 11.5 percent of its gasoline stockpile -- 23.4 million barrels -- disappear.

Traders in New York are using the gasoline supply as a buying cue for both gas and crude oil futures. The price of futures contracts for both gasoline and oil jumped immediately after the 10:30 a.m. release from the Energy Information Administration. The stock market also took an immediate downturn on the news.

What's causing the nation's gasoline stocks to drop? Consumer demand for gasoline is not lagging despite the historically high prices. According to today's report, demand for gasoline in the United States is up 0.8 percent over the last year.

It's not just demand that's driving down the stocks. A switch from the synthetic fuel additive MTBE to ethanol in many regions of the country has led to a slowdown in production in local areas.

So the problem is twofold -- increasing demand in a market that's having trouble providing supply because of a change in the product.

Looks like prices at the pump might be headed even higher. Gas prices are already at their highest level since October 2005, according to the Energy Department. Last week the national average price of a gallon of gasoline went up 10 cents to $2.78. The price is 24 percent above the retail price from the year-age average price of $2.24.