Area gas prices reach record high of $3.39

PHOTOGRAPHER: Jason Subik

The average price for a gallon of regular unleaded gas in the Capital Region tied the all-time local record Wednesday: $3.39.

The last time gasoline was that expensive in the Capital Region was in September 2005, shortly after Hurricane Katrina.

The price is up about 53 cents from last year and 8 cents from last month and is only 2 cents shy of the all-time highest national average price, adjusted for inflation, of $3.41 per gallon, set in March 1981, according to the U.S. Energy Information Administration.

The national average price of a gallon of gas rose 1.2 cents Wednesday to a record $3.34 a gallon, according to a survey of gas stations by AAA and the Oil Price Information Service.

The average price of gas in any region of New York state generally exceeds the average national price because New York places more taxes on gas than most other states.

Tom Bergin, a spokesman for the state Department of Taxation and Finance, said 32.75 cents of the total cost of any gallon of gasoline sold in New York is collected as state taxes.

Counties impose additional sales taxes of their own, and there are also federal taxes to pay. But the state gets the biggest share.

Stewarts Shops Corp. gasoline manager Mike Bombard estimates that about 60 cents per gallon of gasoline tends to go to local, state and federal taxes, depending on the base cost of gas.

“All of the taxes, unfortunately, do get passed on to the consumer, no doubt,” Bombard said.

Assembly Majority Leader Ron Canestrari, D-Cohoes, said the state tried to reduce costs for consumers in 2006 when it capped the state sales tax on gasoline at no more than 4 percent of $2 per gallon of gas, 8 cents, but the price has continued to increase.

“I don’t believe we’re in position now, passing the budget for 2008-09, to reduce the gas taxes. The budget’s done. We will not revisit this until next year, and I think it unlikely that during the course of the year we will reduce gas taxes,” Canestrari said.

With the peak summer driving season still to come, gas prices could reach the retail price of $4 a gallon, according to government forecasts.

High prices, however, are hurting demand, which fell last week by nearly 2 percent from year-earlier levels, according to the EIA’s weekly inventory report.

“People are cutting back on gasoline purchases because the economy is squeezing them right now,” said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago.

Analysts expect demand to fall further as prices rise. Theoretically, that should bring prices down. But so far this year, that hasn’t happened.

With gasoline supplies shrinking and the summer approaching — when demand, while weaker than last year, will be stronger than it is now — consumers may have to wait until this fall for price relief.

The EIA report, closely watched by the futures market, also said crude oil supplies fell by a surprising 3.2 million barrels last week; analysts surveyed by Dow Jones Newswires had expected an increase of 2.4 million barrels on average.

That sent light, sweet crude for May delivery up $2.37 to settle at a record $110.87 a barrel Wednesday on the New York Mercantile Exchange after earlier rising as high as $112.21. That beat a trading record of $111.80 set last month.

Before the EIA issued its report, oil prices were already higher due to the dollar’s slide against the euro Wednesday.

Many investors see commodities such as oil as an effective hedge against a falling dollar and inflation.

Also, a weaker greenback makes oil cheaper to investors overseas.

Analysts place much of the blame for oil’s rise to record prices well above $100 a barrel this year on speculative investors drawn to oil futures by the falling dollar.

With the Federal Reserve expected to cut rates several more times this year, which will likely further weaken the dollar, oil prices may continue rising despite tepid demand.