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Published December 29 2010

Gas prices bounding toward $3 and might not stop

The average price of gasoline in the Fargo-Moorhead area is poised to hit $3 a gallon for the first time in more than two years, and observers say it could go higher this spring and summer, potentially putting a damper on travel and the economy.

Tuesday’s metro average was $2.98 for a gallon of regular gasoline, according to AAA North Dakota.

That’s up a dime from a week ago, 19 cents over last month, 32 cents over six months ago and nearly 50 cents over a year ago.

“And this is a time period when we generally see gasoline prices fall,” AAA spokesman Gene LaDoucer said. “The fact that they’re on the rise currently likely will lead to very volatile prices coming in the spring and summer.”

Several F-M gas stations were selling at $3 or $3.05 a gallon Tuesday, with a couple as high as $3.10 a gallon. Statewide averages were $3.08 a gallon in North Dakota and $3.02 a gallon in Minnesota.

Behind the bump in gas prices is the rising price of crude oil as a result of increased worldwide demand, especially from countries such as China and India, LaDoucer said.

The price of crude oil topped $91 a barrel Tuesday, its highest level since the first week of October 2008 when it was $93.38 a barrel, according to the U.S. Energy Information Administration.

Based on the cyclical nature of oil and gas markets, LaDoucer said it “certainly isn’t out of the question” that crude could top $100 a barrel and gas prices could reach $3.50 or $4 a gallon by summer. The one-year forecast for crude oil was $105 a barrel Tuesday on www.oil-price.com.

The prospect of prices that high concerns members of the North Dakota Petroleum Marketers Association, president Mike Rud said. Higher gas prices create tighter profit margins for retailers and put a crunch on their ability to cash flow because they pay so much more for a load of gasoline, he said.

“The economy’s not that strong across the country as it is, so this’ll just put another dagger in the whole process as we try to recover from this thing,” Rud said.

The association doesn’t believe demand is solely to blame – or even mostly to blame – for the higher gas prices, Rud said.

“We’ve said for the last four to five years, this has had nothing to do with supply and demand,” he said. “This has been market manipulation and speculation.

“You’ve got people who are taking advantage of a very strong energy market who are putting their money in a safe place, and the safest place right now to put your money is into commodities and the energy market,” Rud added.

The Petroleum Marketers Association of America is lobbying Congress for reforms that would give the Commodity Futures Trading Commission more oversight to regulate the energy market and curb speculative price swings.

“We believe there’s as much as maybe a $1.35 markup right now into the price of a gallon of gasoline based totally on the speculation, the amount of money these guys are dumping into the energy markets,” Rud said.

Current gas prices didn’t seem to curtail Christmas holiday travel, but recent history has shown people begin to change their driving habits when prices approach $3.50 a gallon, AAA’s LaDoucer said.

The auto club saw “significant changes” in driving habits when prices nationally averaged more than $4 a gallon in June and July 2008, he said.

“At some point, you start seeing demand decrease based on the price of a gasoline, and that starts to level off prices to a certain extent,” he said.

Rising Fargo-Moorhead metro gas prices


Readers can reach Forum reporter Mike Nowatzki at (701) 241-5528