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Gas prices pass $3 a gallon
By Gary Richards - Mercury News

Oh brother, Californians dealing with double-digit unemployment, steep wage cuts and bleak 401(k) reports are getting hammered again.

Gas prices crossed the $3 threshold in California on Monday, hitting an average of $3.01 a gallon, the highest since Halloween and $1.21 a gallon more than we were paying at Christmas. A 15-gallon fill-up now costs $18.15 more than it did in December.

Why the increase? Demand is down because the recession has cut commuting and summer driving plans. But decreased demand has led to decreased oil production, imports and refining — thereby tightening supplies and driving up prices.

"Let prices increase more and the economic slowdown will be longer," said Randy Dugger, a computer consultant from San Jose who puts 100 miles a day on his 2000 Subaru Outback and now drives 65 mph instead of 70 to save fuel. And he heads to Costco for gas whenever he can "to save a little bit more."

The question now: How high will prices go? Even though crude oil prices briefly slipped under $70 a barrel on Monday, most analysts say gas prices will go higher, perhaps another quarter or so.

"We may see prices around the Bay Area top out around the $3.25 mark in the next couple of weeks," said Matt Skryja, who tracks fuel prices for AAA. "Many investors are anticipating a turnaround in the economy, and that has spurred them to buy more oil, which is helping to drive the price up."

Amid other signs of decreasing supply, the American Petroleum Institute on Tuesday is expected to report a decline of 1.7 million barrels of crude oil imports last week. That would follow a drop of 676,000 barrels a day from the previous week.

The decreased availability of oil, combined with a slight increase in summer driving, can keep crude prices on the rise, and the price of crude, said Susanne Garfield of the California Energy Commission, is the main factor behind our woes at the pump.

"Crude price, crude price and crude price," she said, pointing out that those costs have increased almost $30 a barrel since the beginning of the year. Each $1 rise in the price of crude translates into a 2.5-cent jump per gallon of gas.

But that is a far cry from last summer, when crude costs approached $150 a barrel and pump prices hit $4.59 a gallon in the Bay Area, the highest single-day mark on record.

"Given the state of the world economy, let alone the U.S. and California's, it's difficult to imagine crude prices sustaining higher levels," Garfield said. "It's hard to imagine anything like last year."

Still, if fuel prices do climb to $3.25 a gallon, the fragile U.S. economy won't be helped. More money for gas means less money to spend on items that might help the nation recover from the recession.

"The gasoline rise is like a tax we feel very painfully every time we go to a gas station," Ed Leamer, director of the UCLA Anderson Forecast, told the Los Angeles Times. "It adds uncertainty and can lead to people spending less. It will tend to retard the economic recovery and make it less powerful."

Transit agencies across the country have designated Thursday as "Dump the Pump Day." Some bus and train lines may offer free fares — fares that will be rising this summer or next year as transit groups try to raise funds to overcome budget cuts.

R.T. Trask of Saratoga called in to voice his frustration over red lights on De Anza Boulevard and Saratoga-Sunnyvale Road through Cupertino and Sunnyvale. Now, however, he has another gripe.

"I can't buy a green," he said. "This is awfully frustrating, especially since I have more time to look at the rising gasoline prices."

Contact Gary Richards at mrroadshow@mercurynews.com or 408-920-5335. The fax number is 408-288-8060.