Conflict in the Middle East and fighting in Libya prompted government analysts to raise expectations for gasoline prices by 50 cents a gallon for the peak driving season in the Energy Information Administration's monthly Short-Term Energy Outlook. The EIA boosted its per-barrel oil estimate by $9 for the year.
The agency sees pump prices peaking at $3.75 a gallon in June. But its report says there is "significant uncertainty surrounding the forecast" and pump prices could spike above $4 this summer, which would threaten the all-time high of $4.11 a gallon reached in July 2008.
On Tuesday, the national average for a gallon of regular was $3.51, down a penny from a day earlier, according to data from the Oil Price Information Service (OPIS). That's 31 cents higher than a month ago and 77 cents above a year ago.
In Southwest Ohio, the average prices of a gallon of unleaded regular gas Tuesday was $3.46, up 31 cents from a month ago and up 78 cents from a year ago, OPIS data shows. In Northern Kentucky, Tuesday's average price was $3.50 a gallon, up 31 cents from a month ago and up 85 cents above a year ago.
After settling at $105.44 a barrel on Monday, benchmark crude lost about 80 cents in Tuesday afternoon trading.
The Energy Department expects world oil markets to tighten over the next two years with the average oil price rising to $105 a barrel in 2012. It said uncertainty about oil production in North Africa and the Middle East, the world's largest oil-producing region, is a major factor.
The government also expects oil production lost from Libya to be covered by increased production in other OPEC countries. Saudi Arabia, the biggest OPEC contributor, has said it will cover any shortfall caused by strife in the region.
Meanwhile, the cost of jet fuel used by major airlines jumped to $2.62 a gallon in January - the highest since late 2008, according to data released Tuesday by the federal Bureau of Transportation Statistics.
The price represented a 33 cent or 14.4 percent jump from industry costs in December as well as a 43 cent increase or 19.6 percent increase from the same month a year ago.
Fuel costs are the primary reason that U.S. airlines have raised fares six times already this year. FareCompare.com CEO Rick Seaney says leisure travelers may now have to pay $260 for a ticket that cost $200 back on Jan. 1.
Over the weekend Southwest Airlines Co. joined a $10 increase started by other airlines on many domestic round-trip fares. Southwest's increase may have ensured success for a price hike by major airlines that seemed to be faltering. Southwest carries more U.S. passengers than any airline and wields great influence over prices.
The latest price increase started early last week. Delta Air Lines Inc. tried to raise many fares by up to $20 per round trip, but other big airlines sided with a $10 increase started by AMR Corp.'s American Airlines. Low-cost airlines JetBlue, AirTran and Virgin America also raised prices, virtually assuring that the increase will become permanent, he said.
There were only four broad airline fare increases in all of 2010, and two of those occurred in December. The flurry of fare hikes so far this year mirrors the rapid rise in fares and fuel surcharges in early 2008, when oil prices were heading toward record levels. For the latest updates PRESS CTR + D or visit Stock Market news Today
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