Gas cost clouds holiday weekend

More may stay put as price spikes again

Motorists face record gasoline prices as the summer driving season kicks off this weekend, but those willing to spend close to $4 a gallon to leave town may enjoy at least one benefit: less holiday traffic.

The American Automobile Association expects record gas prices and an uncertain economy to reduce the number of people traveling over the Memorial Day weekend for the first time since 2002, when fresh memories of the Sept. 11 terrorist attacks kept Americans close to home, said Art Kinsman, spokesman for AAA of Southern New England.

In the Northeast, AAA projects holiday travel will fall 3 percent from a year ago, and travel should slip about 1 percent nationally.

"It's been climbing steadily for the past several years," Kinsman said, "but we've finally reached the point where gas prices are affecting people's decision to drive long distances."

Prices of regular unleaded hit another record yesterday, averaging $3.82 in Massachusetts and $3.83 nationally, AAA reported. Average prices for premium grades were comfortably above $4 a gallon, while diesel hit a whopping $4.72 a gallon in Massachusetts and $4.59 nationally.

They could well go higher before the heavily traveled weekend is over, analysts said. "Between now and Memorial Day, there's nothing stopping prices from going higher," Kinsman said.

Gasoline prices are following crude oil's relentless climb. After closing at a record $133.17 a barrel in New York on Wednesday, crude prices retreated to just under $131 a barrel yesterday as investors took profits. Since the beginning of the year, crude prices have soared more than 30 percent, and analysts say they probably have higher to go.

Analysts at Goldman Sachs have projected crude prices will average about $140 a barrel in the second half of this year, while oil tycoon T. Boone Pickens recently predicted the price will hit $150. Darin Newsom, senior analyst at DTN, an Omaha commodity-analysis firm, said he expects crude to hit $144 a barrel.

"There's no indication we're at the top of the market," he said.

Many factors are driving oil prices higher, analysts said, including tight global supplies and growing demand, particularly in rapidly developing nations such as China and India. Meanwhile, the International Energy Agency, a Paris organization that monitors world energy markets for 27 nations, said yesterday it is worried about world energy supplies being able to meet long-term demand and is reassessing the output of 400 major oil fields.

Also contributing to the rise is the weak dollar, which has traded at or near record lows against other currencies. Oil trades in dollars, so when the dollar is worth less, producers demand higher prices to make up for the loss in value. This pressure raises fears of inflation, which in turn make oil and other commodities attractive to investors, who view them as holding value during inflationary periods. As investors buy, demand grows and prices go even higher.

The weaker dollar also makes oil less expensive to buyers who hold stronger currencies, such as the euro, also increasing demand and prices.

In the United States, gasoline prices have become a potent political issue. In an effort to lower demand and ease pressure on crude prices, the federal government has temporarily stopped buying oil for the nearly-full strategic petroleum reserve, which was established to cushion the economy from supply interruptions, such as the Arab oil embargo of the 1970s.

Some lawmakers have called on the Bush administration to release oil from the reserve to take the pressure off prices, but yesterday Energy Secretary Samuel Bodman rejected the idea as an ineffective "short-term fix."

Motorists can take some solace that gas prices have not risen as quickly as crude, in part because of slackening demand, which so far has declined about 1 percent from a year ago, according to the Energy Department. US gas prices have risen about 24 percent since the beginning of the year, compared to more than 30 percent for crude.

Ultimately, weaker demand could help gas prices ease after the Memorial Day weekend, analysts said.

"Domestic demand isn't as strong as it normally is," said Newsom, the commodities analyst. "We might have seen the worst this week."

Robert Gavin can be reached at rgavin@globe.com. Material from Globe wire services was used in this report.