US gasoline prices headed higher, government warns

By Tom Doggett

WASHINGTON, Feb 27 (Reuters) - U.S. drivers will pay much more for gasoline this spring and summer than they did last year because of more expensive crude oil, even though supplies are plentiful and motor fuel demand is lower, the government's top energy forecasting agency said on Wednesday.

The price of crude oil, which accounts for about two-thirds the cost of making gasoline, hit a record $102 a barrel this week, up sharply from $60 a barrel a year ago.

The federal Energy Information Administration's next monthly energy forecast on March 11 is expected to revise up its prior estimate that gasoline would peak at around $3.40 a gallon this spring.

The agency said crude oil prices may fall gradually through 2008, but not enough to give consumers much savings at the pump.

"Taking both gasoline market conditions and crude oil prices into account, it is still likely that we will see gasoline prices peaking at a higher level this spring and summer than we did in 2007," the EIA said in its weekly review of the oil market.

U.S. gasoline prices rose 17 cents in the last two weeks to a national average of $3.10 a gallon, even though gasoline demand during the last four weeks declined 1.1 percent from the same time last year, the EIA said.

"Gasoline demand growth has softened in response to a struggling economy and gasoline prices averaging above $3 per gallon all fall and winter," the agency said.

Bigger U.S. gasoline inventories, currently up 12 million barrels from a year ago to a 14-year high of 233 million barrels, also are not enough to outweigh the impact of expensive oil at the pump, the EIA said.

"While gasoline stocks and likely refinery availability appear to have improved relative to the year-ago situation, there is still, unfortunately, another key element to consider: crude oil prices," the EIA said. (Reporting by Tom Doggett; Editing by David Gregorio)