Gas Prices Close To Record, Could Rise Due To New Fuel Law

According to the U.S. Energy Department, drivers this weekend will pay the highest fuel prices on record for Memorial Day, after average U.S. retail prices at the pump jumped by 3.4 cents last week to $1.526 a gallon. The pump price is up 40 cents a gallon from a year ago, based on the Energy Information Administration's (EIA) weekly survey of 800 service stations.

The high prices leading into Memorial Day, traditionally the start of summer, are the highest since the EIA began tracking weekly fuel costs during the Gulf War in 1990. This week's price is just three-tenths of a cent below the all-time record high of $1.529 a gallon set in late March.

The national price for unleaded gasoline has risen three weeks in a row, increasing 10.6 cents over the period, and is already way above the peak $1.45 a gallon average price the EIA has forecast for the summer driving season.

West Coast drivers continued to pay the most for gasoline, with the price up 2.2 cents to $1.628 a gallon. The Gulf states had the cheapest fuel, up 1.6 cents a gallon to $1.455.

REFORMULATED GAS FUELING PRICE HIKES. Rising gasoline prices reflect higher crude oil prices, strong demand for gasoline and concern over low motor fuel inventories. The potential low inventories are partially a result of the scheduled June 1 fuel changeover to a greener Phase Two reformulated gasoline (RFG 2) for one-third of the country, mostly in the Northeast and in cities where smog has been a constant threat to the environment. The change to RFG 2 is part of an effort by the Environmental Protection Agency (EPA) to reduce smog pollution.

The changeover is causing inventory concerns due to production of the new fuel. Refiners, who have been devoting their efforts to producing the summer fuel since early spring, claim the new gasoline is more difficult to make than conventional gasoline and they are unable to produce as much.

Fears of shortages of the new green gasoline, have already prompted a handful of marketing associations in the Midwest to request leniency from the EPA, allowing them to sell dirtier conventional fuel. The EPA is now facing a choice whether to run the political risk of high gasoline prices this summer, or to infuriate U.S. refiners who have spent billions of dollars preparing for the new rules by letting some areas opt out. The EPA has already issued a temporary waiver to supply-starved St. Louis, and Secretary of Energy Bill Richardson said Tuesday that waivers for other troubled cities were under consideration, including Chicago and Milwaukee.

"U.S. gasoline producers failed to rise to long-awaited environmental standards set to hit this summer, and now there are fears of shortages," said Geoff Sundstrom, spokesman for the American Automobile Association (AAA). "We're looking at extremely high prices that drivers have never seen in the past," said Sundstrom.