Little relief in sight for fuel prices

6/10/2008

WASHINGTON - As gasoline prices soar to new records, America's President - and the two men who hope to succeed him - are offering only partial or long-term solutions.

Americans began this workweek by crossing a dismal threshold, paying a once-unthinkable nationwide record average of $4.02 per gallon yesterday for unleaded gasoline and facing the prospect of even higher prices in months ahead.

The Energy Information Administration survey found gasoline was the most expensive on the West Coast at $4.33 a gallon, up 16 cents. Los Angeles had the highest city price at $4.42, up 21 cents.

The Gulf Coast states had the lowest regional price at $3.91 a gallon, up 6.3 cents. Houston had the lowest pump price, up 7.7 cents at $3.88.

President Bush said yesterday that one answer is to increase oil drilling in Alaska and offshore.

Presumptive Republican presidential nominee John McCain's chief economic adviser renewed Mr. McCain's call to suspend the 18.4 cents per gallon federal gasoline tax. Presumptive Democratic nominee Barack Obama called for a windfall profits tax on oil companies.

Speaking in Raleigh, N.C., Mr. Obama yesterday repeated his call for a tax on high oil company profits to fund aid programs for the poorest Americans.

"I'll make oil companies like Exxon pay a tax on their windfall profits, and we'll use the money to help families pay for their skyrocketing energy costs and other bills," he said.

Longer term though, Mr. Obama said, the only answers are to increase use of alternative energy - solar, wind, biodiesel, clean-coal technology - and to increase fuel-mileage standards for vehicles and develop hybrid-electric cars, which will take time.

Mr. McCain's longer-term answers turn more toward increasing production of oil from offshore and from oil-shale deposits in the West.

As gas prices continue to rise, there are more signs that Americans are changing vacation plans, consolidating errands, and turning to carpools and mass transit.

The average price of a gallon of gasoline nationally is now almost a dollar higher than it was a year ago, according to the Energy Department.

"The fear here is that we've crossed a Rubicon," said John Townsend, a spokesman for AAA. "Normally, prices plateau after Memorial Day ... But I don't think we're going to get much relief this summer."

In a society nurtured on cheap gasoline, the high fuel prices are having disparate effects: the end of free pizza deliveries at major franchises, a plunge in the sales of sport utility vehicles, a steep drop in the price of houses that are far from jobs or mass transit.

Federal officials have also reported the first decline in miles driven on U.S. roads since 1979, business at roadside convenience stores has slowed, and the tourism industry is bracing for a downturn this summer. Nationwide, about 8 percent of Americans say they have changed their commuting patterns and are taking public transportation, according to a survey conducted by NPD Group, a market research firm. The same share of respondents said they would vacation closer to home this summer because of rising gas prices.

After more than five years of petroleum price increases, American consumers appear to be expecting the worst.

A CNN poll taken last week showed that 59 percent of Americans believe it is very likely that they will pay $5 a gallon for gasoline before the end of the year and that an additional 27 percent say it is somewhat likely.

Economists fear that the steadily rising price of gasoline is eating into the money consumers have to spend on other items and that fuel prices could be a drag on an economy already weighed down with concerns about housing prices and the stability of financial institutions.

"It saps people's purchasing power," said Mark Zandi, chief economist of Moody's Economy.com. "If they have to spend more to fill their gas tanks and heat their homes, everything suffers."

While gas prices continued to rise, oil futures retreated yesterday after Treasury Secretary Henry Paulson said he wouldn't rule out intervention to stabilize the dollar - boosting the greenback against the euro - and after Saudi Arabia said it would call for a meeting to discuss crude prices that it called unjustifiably high.

On CNBC, Mr. Paulson said he would not rule out intervening to stabilize the dollar, though he declined to speculate about what the government might do. The dollar strengthened against the euro on Mr. Paulson's comments, sending oil lower.

Many investors buy commodities such as oil as a hedge against inflation when the dollar weakens. But yesterday the effect reversed; the dollar gained ground, making oil less effective as an inflation hedge.

Meanwhile, Saudi Arabia said it will call for a meeting of oil-producing countries and consumers to discuss oil prices. Information and Culture Minister Iyad Madani said the kingdom will work with OPEC to "guarantee the availability of oil supplies now and in the future." He said the price of oil is unjustified.