Rise in gasoline prices may pose risk to consumer sentiment

By Sober Look On Feb 10, 2013

As the winter storm pounded the north eastern United States on Friday, gasoline futures hit another high. The March delivery contract broke $3.06, indicating that retail prices for fuel will be going up.

March 2013 gasoline contract

Already prices at the pump are the highest for this time of year.

CNBC: – Nationally, retail gasoline prices have soared 11 cents in a week and nearly 30 cents in a month to $3.57 a gallon on Friday, according to AAA. Pump prices are the highest on record for early February, and are rising the fastest along the coasts.

The state-wide average price of gasoline in New York is $3.92 a gallon and California gas prices on average have now surpassed the $4-a-gallon mark.

Increased demand from abroad, stronger crude prices, and some refinery shutdowns are all contributing to higher prices.

MarketWatch: – Consumers haven’t even seen the worst, with a perfect storm of factors driving higher prices.

Many of the issues lifting fuel prices higher are common, but they “seem to have combined at the right time,” said Matt Tormollen, president and chief executive officer at FuelQuest, a Houston-based fuel management software provider.

Typically at this time of year, refineries begin their switch to the more environmentally-friendly summer-blend gasoline and perform maintenance, which “temporarily restricts supply and drives up prices,” he said.

Some refineries have also announced unexpected shutdowns or closings, leading to even tighter refining capacity, said Jeff Lenard, a spokesman at the National Association of Convenience Stores (NACS), a trade group for an industry that sells 80% of the nation’s gasoline.

Late last month, Hess Corp. HES +1.23% said it would close its Port Reading, N.J., refinery by the end of February, completing its exit from the refining business. See Jan. 28 story on the rally in Hess shares.

And of course the Fed’s recent activities are not helping the situation either (discussed here). Ultimately this trend of rising fuel prices, combined with the possibility of higher taxes in the future, constitutes the biggest risk to US consumer sentiment and spending.