Gas prices chugging higher as holidays near

[October 31, 2009]  NEW YORK (AP) -- Americans are paying more for gasoline than they did last year as the holidays approached - billions of dollars that could go to books, clothes and Barbie dolls instead being spent at the pump.

Gas averaged nearly $2.70 a gallon Friday, the highest of the year - adding bad news to an already fragile economy and making it even less likely that people will spend their way out of the recession.

From last November to January, the average price was $1.86. Even if prices average $2.50 per gallon during the same period this year, Americans will pay an extra $26.6 billion for gas, said Tom Kloza, chief oil analyst at Oil Price Information Service.

Americans didn't have much going for them financially in late 2008, but they did have this: Gas prices plunged by 93 cents per gallon between Oct. 30 and the end of the year. It was like a generous energy tax break, just in time for the holidays.

Thanks mostly to the weak dollar, that's no longer the case. And when a gallon of gas runs from $2.50 to $3, people begin to notice, energy experts say.

People make a "clear emotional connection" between the price of gas and how much they spend on other things, said Wendy Liebmann, who monitors shopping habits through her company WSL Strategic Retail.

"It nibbles out of our paycheck, and there's nothing we can do about it," Liebmann said. "We've got to get the kids to school. We've got to get to work if we're lucky enough to have a job."

As gas prices soared from 2006 to 2008, people became increasingly tightfisted, a survey by WSL found. When gas peaked above $4 a gallon in July 2008, more than two-thirds said they had cut back on other spending so they could still use their cars.

Prices today are a far cry from the peak. Crude oil, which neared $150 per barrel last year, is trading at about $80 now. But drivers are feeling the pain nonetheless.

Anything more than $3 a gallon "is high for me," said Rene Contreras, 24, as he filled his Chevrolet Monte Carlo at a Chevron gas station in Los Angeles that was charging $3.17 a gallon. Contreras added only a half tank before rumbling off.

"I might give lower-income gifts because of the gas prices" this Christmas, Contreras said.

Gas prices are rising even as Americans drive much less than they did before the recession hit, and as the country sits on massive petroleum supplies. A weak dollar is making fuel more expensive.

Oil is bought and sold primarily in dollars. When the dollar falls, investors holding euros, for example, can buy more crude with less. And they have.

Since March 2, the value of the dollar has fallen 18 percent against the euro. In that same period, a barrel of oil has doubled in price, to around $80. Pump prices have gone along for the ride.

Gas prices have risen 17 days in a row, hitting a national average of $2.695 per gallon Friday, according to auto club AAA, Wright Express and Oil Price Information Service. The last time gas cost close to that was June, during the summer driving season.

And prices will probably stay high because oil companies have become much more conservative about producing fuel after getting burned by the dramatic fall in energy prices last year.

Spending $40 to $50 every time you fill up your tank has a domino effect, said Amy Jaffe a fellow at the James A. Baker III Institute for Public Policy at Rice University.

"That's a new pair of jeans. I'm making a decision between filling my tank and buying a new pair of jeans," Jaffe said. "When we get to that point, you can expect that to hurt the economy."

---

Associated Press Writers Maryclaire Dale in Philadelphia and Ryan Nakashima in Los Angeles contributed to this story.

[Associated Press; By CHRIS KAHN]

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.