Gasoline, oil prices rise amid signs of economic improvement

Retail gasoline prices jumped about two cents a gallon nationwide and in California as oil futures edged toward $80 a barrel today.

The average cost of a gallon of regular gasoline in California rose for the second straight week, up 2.1 cents to $2.933. Nationally, the average price rose 1.8 cents to $2.607, according to the Energy Department?s weekly survey of service stations. At this time last year, the U.S. average was about a dollar cheaper and the California average was $1.12 cheaper.

Oil was trading at about $40 a barrel then. Today, light sweet crude for February delivery settled at $78.77 a barrel, up 72 cents, on the New York Mercantile Exchange, driven higher by a cold snap, unrest in supply centers and promising signs of an economic recovery.

Oil has risen 76% this year so far, and some analysts said it could hit $80 to $85 before the year closes. After rising for four days in a row, the price of oil is at a four-week high amid signs of strengthening economic activity, including a report from SpendingPulse estimating that U.S. retail spending was up 3.6% this holiday season compared with a year earlier. An improving economy means more demand for oil and its products. So does the severe winter weather hitting parts of the country.

Concerns about supplies also are boosting oil costs. ?We have tensions over oil pipeline negotiations between Russia and the Ukraine, and when the pipeline was shut down last year, oil jumped $14 a barrel in just a few days,? said Phil Flynn, an analyst at PFGBest Research in Chicago. ?We could see a quick rise of $5 to $8 a barrel if tensions remain high.?

Russia had warned the European Union that it may cut its crude oil supplies due to demands by Ukraine for higher transit fees. Some of those fears were allayed after the close of trading when Russia and Ukraine announced that they had agreed on the terms of a new deal governing the transit of oil exports to Europe. Irina Yesipova, a spokeswoman for the Russian energy ministry, said that the deal would be signed in the coming days and that no interruption in supplies is expected.

But another international hot spot figured to have traders jittery through the rest of the week. Iranian authorities today intensified their crackdown against a budding opposition movement, just a day after at least eight people were killed during protests.

Adding to the volatility is the fact that the last week of every year is typically a low-volume trading affair in which many of the major players sit on the sidelines and those that are left tend to overreact to world events, said Tom Kloza, senior oil analyst for the Oil Price Information Service in New Jersey.

?We?re looking at one-sixth to one-fifth of the normal trading volume this week, and you tend to find a lot of the people who are left are grasping at straws. This looks like it could be a false rally,? Kloza said.

Kloza added that oil and gasoline prices could cool in January, as holiday retail bill arrivals dampen enthusiasm and demand. He said January is usually a month in which Americans drive less after traveling to see family and friends during the holiday season.

-- Ronald D. White

Photo: Nicole Morones fuels her car with gasoline at an Olympian gas station in South San Francisco. Credit: Bloomberg