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March 2, 2012, 1:02 p.m. EST
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By Myra P. Saefong, MarketWatch
SAN FRANCISCO (MarketWatch) "” Gasoline prices have climbed every day for the last 36 days so it's no wonder why consumers are worried that record levels are destined for the pump in the next few months. But the many reasons behind the climb aren't quite so easy to decipher "” making prices even harder to predict.
The simplest explanation for high gasoline prices goes like this: "you're paying more for gasoline because oil refiners are paying more for crude," said Byron King, editor of investment newsletter Outstanding Investments.
Biofuel and electric cars are gaining traction in the face of a spike in crude oil prices. Steve Gelsi from MarketWatch reports.
Recent political and military tension with Iran has added a "war risk" premium to the markets, he said. "War is bad for business, but rumors of war are good for the oil business."
"It doesn't matter that the U.S. imports exactly zero Iranian oil," King said. "The U.S. competes for oil with every other oil-importing nation and the tensions with Iran have set a higher price at the margin. The margin sets the price for everything else."
The average U.S. retail price for a gallon of regular gasoline stood at $3.741 a gallon Friday, up 29 cents from a month ago and 31 cents higher from a year ago, AAA data show. Prices have shot well over $4 in some parts of the country, such as California.
Average national prices have been climbing from Jan. 26, when unleaded was at $3.38 and midgrade was at $3.51, after starting the year at the highest"“ever level for the beginning of a new year, according to the Oil Price Information Service, which compiles the AAA data, in cooperation with Wright Express. Read about how gasoline started the year.
The record average was $4.11 a gallon reached in July 2008.
"Rumors drive prices upward, especially when it comes with fear of even a temporary closure of the Strait of Hormuz," said King.
Flows through the strait, located between Oman and Iran, represented about 35% of all seaborne-traded oil in 2011. Read about Iran's impact on oil.
"Everyone fumbles for a single reason to explain high crude-oil prices, which are the primary reason for high U.S. gas prices," said Tom Kloza, chief oil analyst at OPIS.
Brent oil futures, which traded around $124 a barrel on Friday, have climbed around 20% year to date. West Texas Intermediate crude /quotes/zigman/2203138 CLJ2 -1.70% , which trades near $106 on Nymex, is about 8% higher year to date. Read about Friday's action in oil.
Gasoline for future delivery has rallied more than 20% year to date, with the April contract /quotes/zigman/2241139 RBJ2 -2.17% trading at $3.28 a gallon Thursday on Nymex.
And while the higher crude costs have come on the heels of tensions with Iran, there are many other reasons why consumers are paying the highest gasoline prices at the pump since June.
"Iran, money flow, refinery closures, refinery maintenance, exports, imports, poor non-OPEC production growth, and flat OPEC output are all legitimate factors," said Kloza.
Retail gasoline prices have been tracking the increase in Brent crude prices, said John Felmy, chief economist at the American Petroleum Institute.
It's about the "cost of making a product," he said, and on the East Coast, most of the refiners' cost in making it comes from Brent.
Strong world oil demand, with China growing at a rapid pace and India right behind it, along with supply that is "challenged," with Libyan production still offline and problems in Nigeria, have all contributed to oil's strength "” and creates a "cloudy crystal ball" for gasoline prices, he said.
Recent closures in the refining sector have certainly been bad news for consumers.
Sunoco Inc. /quotes/zigman/241559/quotes/nls/sun SUN -0.58% plans to shut a 335,000-barrels-per-day Philadelphia refinery this summer if no buyer is found.
And in the last few months in Pennsylvania, Sunoco shut a 178,000-barrels-per-day refinery and ConocoPhillips /quotes/zigman/294662/quotes/nls/cop COP -0.72% closed a 185,000-barrels-per-day refinery. More recently, Hovensa SA shut its 350,000-barrels-per-day joint venture refinery in the U.S. Virgin Islands. Read more on refinery closures.
"A lot of refineries that are refining Brent are losing money," said Felmy.
Still, the U.S. refinery system produced a record amount of 9.1 million barrels per day of gasoline last year, outpacing 2011 demand of 8.5 million barrels a day, he said, adding that refiners were able to increase their exports of gasoline to keep in business.
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Myra P. Saefong is our assistant global markets editor based in Tokyo. She has been with MarketWatch since 1998 and holds a master's degree in English... Expand
Myra P. Saefong is our assistant global markets editor based in Tokyo. She has been with MarketWatch since 1998 and holds a master's degree in English literature. Collapse
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