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Average gas price just 10 cents from $4 a gallon, and rising

Ron SchererThe Christian Science Monitor

Gas prices were only 10 cents away on Monday from moving to a national average of $4 a gallon.

Over the past week, the price of fuel rose another 5 cents a gallon and is up 23 cents a gallon from a month ago, according to AAA’s Fuel Gauge Report.

Economists consider the steady increase in gas prices to be a threat to the economy, because consumer confidence erodes as people have less money in their pockets after they pay their gasoline bills. Although the price of gasoline has hit $4 a gallon before, that's the level at which some motorists begin to change their driving and buying habits, polls show. If average price of gasoline reaches $4 a gallon or breaks the past record of $4.11 set in July 2008, it is also likely to result in more rhetoric from the presidential candidates.

“There is a lot of frustration that motorists are feeling in their pocketbooks,” says Avery Ash, manager of government affairs for AAA in Washington. “If the average driver uses 90 gallons of fuel a month, it is now costing an extra $12.60 for gasoline” compared with last month.

Although gas prices continue to rise, the price of oil has steadied somewhat. On Monday, the price of West Texas Intermediate hovered at about $107 a barrel, close to the level as it has been for a few weeks.

A main reason the price of oil has remained high is concern over conflict with Iran. Oil prices spiked last Friday in after-hours trading amid rumors that military action in the Middle East was imminent. On Monday, there were rumors about multilateral talks with Iran that might remove some of the tensions in the area, says Phil Flynn, an energy commentator at PFG Best, a commodities brokerage house in Chicago.

“That’s reducing some of the risk premium,” says Mr. Flynn. “If we had a nice peaceful world, we might be hitting the peak in gasoline prices right now.”

Another key reason for rising gas prices at a time when the price of oil is flat is that the nation is currently shifting over to the seasonal summer blends. These cost refineries about 20 cents a gallon more to produce. This added cost is usually tacked on at the pump.

Even as the refiners make that shift, gasoline wholesalers are trying to use up the last of their winter gasoline. “That results in a drop in gasoline supplies,” says Mr. Ash. “It’s worth noting that California has already shifted over to its summer blend,” says Ash. The price of gasoline has fallen a few cents a gallon in the Golden State but is still high at $4.33 a gallon, on average.

While gasoline prices nationally climb toward $4 a gallon, Congress has been debating a bill that would repeal the oil companies’ use of certain tax deductions. The legislation, which is expected to come to a vote Monday evening in the Senate, is likely to include some amendments, such as expedited passage of the Keystone XL pipeline and expanded drilling on federal lands. The measure is not expected to get enough votes to avoid a filibuster, says Pete Davis of Davis Capital Investment Ideas, which provides intelligence to Wall Street. “This is just more posturing for the election,” writes Mr. Davis.

A recent Gallup poll on the US energy situation indicates that the public favors construction of the Keystone XL pipeline, 57 percent to 29 percent. The poll also found that 91 percent of the public say the energy situation in the US is either very serious or fairly serious.

Ash says an AAA poll in early March found that 84 percent of the public say they are changing their driving habits because of gasoline prices. Some 60 percent of respondents say they now combine trips and errands, and 33 percent say they are planning to scale back their driving for their spring vacations.

Unfortunately, air travel may be no less expensive than driving. According to FareCompare.com, Southwest Airlines raised fare prices Monday by $6 to $10 per round trip. This follows a price increase last Thursday of $10 round trip for JetBlue. The last time both airlines raised their fares, the other airlines followed soon after. This is the fifth price increase this year for the industry.