Economy worries may slow gas price rise

WASHINGTON (Reuters) - U.S. consumers will pay more for gasoline in the weeks ahead as fuel demand picks up going into the spring driving season, but a slowing economy may keep pump prices from rising as much as normal, energy experts said on Monday.

The government says motor fuel costs have soared 31 cents over the past month to $2.51 a gallon because of the rise in crude oil prices, which accounts for half the cost of making gasoline. Most of those higher crude prices have been passed on to consumers at the pump.

Pushing up gasoline prices in the weeks ahead will be stronger fuel use as highway travel gets a spring boost.

"Fuel demand increases, that puts upward pressure on prices," said Tancred Lidderdale, an analyst with the U.S. Energy Information Administration, the Energy Department's analytical arm.

Refineries will also switch to less-polluting gasoline required by the government during warmer months, which costs more to make and adds five to seven cents at the pump, according to Lidderdale.

The EIA will revise up its estimate of $2.41 a gallon for the average gasoline price for the second quarter when the agency releases its new monthly forecast on Tuesday, he said.

But the recent steep fall in the U.S. stock market and more concerns about the health of the American economy could dampen the rise in gasoline prices if consumers start cutting back on their driving and petroleum demand weakens, said Geoff Sundstrom, a spokesman for the AAA travel group.

"Consumers are much more likely to reduce their consumption of fuel on the basis of economic anxiety, than they are based on the price of the product," Sundstrom said.

"Certainly, no one wants to pay a high price for gasoline. But if you're feeling good about your job and your income, you're much more willing to do that than if you're concerned as to whether you'll be working a month or two from now," he said.

A drop in crude oil prices due to traders worrying that a weaker stock market or economy would cut into petroleum demand would be reflected at the pump, according to Lidderdale.

"Anything that would lower the oil price is going to keep gasoline prices from going as high as they would," he said.

AAA's Sundstrom also said gasoline prices have shot up faster than normal, and, while costs will continue to rise, consumers may not pay much more at the pump in the short term.

The good news for consumers is gasoline supplies are plentiful and price spikes are not likely.

"Right now, I don't see any reason for consumers to think we're going to revisit $3 a gallon gasoline this spring," Sundstrom said.

That's because refiners are not facing the same supply problems of a year ago, when they began switching over to using ethanol to blend into gasoline and some had a difficult time getting the fuel additive.

"Ethanol production is higher than it was this time last year. There doesn't appear to be a scramble (by refiners) to get the ethanol," Lidderdale said.

Some refining capacity was also still affected last spring due to damage from hurricanes Katrina and Rita.

The big test for the industry this year will be in mid-April when refineries really start to ramp up their production of summer fuel, Sundstrom said.

"If there are problems ... facilities go down for an unexpected time or have start-up problems, pipeline issues, then we could see additional upward pressure on prices," he said.

The EIA said on Monday that the national price of gasoline increased 12.2 cents over the last week to $2.51 gallon, the highest level since last September. The AAA reported an average pump price of $2.48 a gallon.