Transcripts

The Pain at the Gas Pump Is About To Intensify

SUSIE GHARIB: A big spike in energy prices today. In New York trading, May crude futures jumped $4.68 or 4.6 percent to settle at $105.90 a barrel and gasoline futures rose more than 2 percent. The rally came after a government report showing that gasoline inventories fell much more than expected last week, even though oil supplies held steady. As Scott Gurvey reports, consumers can expect to pay more at the pump.

SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: A larger-than- expected decline in gasoline inventories led to record prices for gasoline futures contracts today. That's a bad omen for the summer driving season which officially begins on Memorial Day. The government reported that gasoline inventories fell by 3.3 million barrels in the last week, three times the expected decline. Analysts blame poor refinery utilization for the shortfall. Domestic refiners ran their plants at 82.2 percent of capacity according to today's report. That's the worst showing since October of 2005, when many plants were closed due to hurricane damage. Trader Mark Solazzo says he thinks this trend will continue in the near term and that will keep prices from falling.

MARK SOLAZZO, M. SOLAZZO TRADING COMPANY: I believe you're going to see higher gasoline prices over all. That seems to be what the market wants to do. But eventually the supply and demand will win out and prices should come off if people drive less.

GURVEY: There is evidence that people are driving less. Gasoline consumption over the last month was down 0.3 of 1 percent from a year ago. But lower gasoline demand is not leading to lower gas prices. The most recent government survey showed gasoline prices at the pump at $3.26 a gallon. Analysts say that's because the combination of lower demand and high crude oil prices is cutting into the refiners' profit margins. That leaves the refiners with little incentive to step up production. One thing that would lead to lower gas prices according to oil and gas analyst Fadel Gheit, would be a recession.

FADEL GHEIT, OIL & GAS ANALYST, OPPENHEIMER & CO.: If we have a recession, if we're not in one already, demand will continue to get weaker. There is a straight line correlation between demand for gasoline and economic growth. If we don't have economic growth, demand for gasoline will definitely come down.

GURVEY: Valero Energy, the nation's largest refinery, admitted this week it has cut production due to low margins. Today, the company said the cuts could be reversed if margins improve. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.