Gas, oil prices hit new records

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The national average price of a gallon of regular unleaded gas rose 1.2 cents to a record $3.343 a gallon, according to a survey of gas stations by AAA and the Oil Price Information Service. With the peak summer driving season still to come and gas following crude higher, the fuel may well reach the retail price of $4 a gallon that the Energy Department has been forecasting.

But prices that are 55 cents higher than a year ago are hurting demand for gasoline, which fell last week by nearly 2 percent from year-earlier levels, the department's Energy Information Administration said in its weekly inventory report.

"People are cutting back on gasoline purchases because the economy is squeezing them right now," said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago.

The EIA report, closely watched by the futures market, also said crude oil supplies fell by a surprising 3.2 million barrels last week; analysts surveyed by Dow Jones Newswires, on average, had expected an increase of 2.4 million barrels.

That sent light, sweet crude for May delivery up $2.37 to settle at a record $110.87 a barrel on the New York Mercantile Exchange after earlier rising as high as $112.21. That beat a trading record of $111.80 set last month.

Analysts expect demand for gas and oil to fall further as prices rise. Theoretically, that should bring prices down. But so far this year, gas and oil prices have shown little inclination to fall in response to eroding demand. With gasoline supplies shrinking and the summer approaching — when demand, while weaker than last year, will be stronger than it is now — consumers may have to wait until this fall for price relief.

Some analysts cautioned against reading too much into last week's drop in crude supplies.

"We note there was a sharp decline in crude oil imports," said Eric Wittenauer, an analyst at Wachovia Securities LLC in St. Louis, in a research note.

Flynn believes crude imports fell in part because fog closed several shipping channels in Texas and Louisiana that serve as vital oil import conduits last week. "That leads me to suspect that there are more ships out there in the Gulf (of Mexico) that didn't get counted," he said.

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