Pessimism rises as oil, gas prices set records

The price of oil in the futures market and gasoline at the pump didn’t change much Monday -- but still managed to set records. Pessimism, meanwhile, kept ratcheting higher.

Analysts warn that the relative lull in oil and gasoline costs probably will be temporary, with crude heading toward $160 a barrel and gasoline rising as high as $5 a gallon in California this summer.

The average price for a gallon of self-serve regular gasoline rose 1.6 cents nationwide to $4.095, up $1.136 from this time last year, according to the Energy Department’s weekly survey of filling stations. The U.S. average reached another all-time high after slipping the previous Monday from the record $4.082 a gallon set Sept. 16.

In California, the average fell 1.2 cents to $4.573 a gallon. A year earlier, the state’s average price was $1.416 a gallon lower.

Crude oil for August delivery closed down 21 cents Monday to $140 a barrel on the New York Mercantile Exchange after hitting a record $143.67 early in the day.

Tom Kloza, chief oil analyst for the Oil Price Information Service in Wall, N.J., said drivers paid a record $48 billion for gasoline in June and probably will shell out more than $50 billion this month for the first time in a single month. Five years ago, Kloza said, Americans were spending about $18 billion a month on gasoline.

Bad weather would bring even worse news for consumers.

“In August, it’s all going to be about the hurricane season, and the people who trade in the markets will be limbering up their hamstrings for that,” Kloza said.

He added that a storm wouldn’t even have to hit the Gulf Coast’s petroleum industry for it to drive prices higher.

“We could go to $4.25 to $4.75 nationally, and $5 in California is within the realm of possibility,” Kloza said.

Evidence continues to roll in that drivers are downshifting their time behind the wheel. California’s Board of Equalization said Monday that state motorists cut gasoline consumption in March by 3.2%, or 43.5 million gallons, compared with the same month in 2007.

One of the more extreme examples of a person cutting gas consumption is retired salesman George Campos, 78, of Upland. Although many seniors hold on to their right to drive as an important symbol of independence and self-sufficiency, Campos -- clear of eye and mind and with a valid California driver’s license -- has given up driving altogether.

Campos says he understands that probably isn’t possible for many Americans, especially before retirement, but he wants to make a statement.

“It is a little problem now and then, but it has not been a serious problem. There are a lot of people who could do without cars, provided they have good friends and neighbors who are willing to help them out,” he said.

Campos lives within walking distance of his grocery store, gets a lift from friends to church every Sunday and plans ahead for trips he has to make to see if someone can give him a lift. Invariably, he says, he finds someone who can drive him, and he can still borrow his son’s car to drive in an emergency.

“I don’t miss driving. I don’t pay insurance. I don’t replace car batteries and tires. I’m saving a ton of money,” Campos said.

Consumer conservation, even as drastic as that by Campos, won’t do much to bring oil prices down, said John Kilduff, vice president of risk management at MF Global in New York. He thinks crude could reach $157 a barrel before the surge ends.

The key to rolling back prices could be the policies of post-Olympics China, he said.

“If China reins this in after the Olympics and brings down its subsidies on fuel prices, that could be the game changer,” Kilduff said.

Some analysts, such as Fadel Gheit at Oppenheimer & Co., are convinced that oil prices are grossly inflated and due for a big fall; they just don’t know when that might happen.

“I don’t rule out a surge before the final price collapse,” Gheit said. “The longer oil prices remain high, the bigger the impact on the economy.”

But Phil Flynn, senior market analyst at Alaron Trading Corp. in Chicago, saw little cause for optimism.

“With the stock market on track for the worst June performance since the Great Depression and with the dollar still weak, it looks like oil is going to soar,” Flynn wrote in a report to clients Monday.

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