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Higher Pump Prices May Retreat Soon

SANDY SHORE   10/15/10 04:40 PM ET   AP

Oil Prices

There was good news and bad news in energy prices this week. While drivers paid more to fill their tanks than they did a year ago, some analysts think it shouldn't be long before gas is cheaper again.

Also, the government said many Americans won't see big spikes in their winter heating bills.

The national average for a gallon of regular gasoline was $2.833 on Friday. That's about a nickel more than a week ago and up nearly 35 cents from a year ago, according to AAA, Wright Express and the Oil Price Information Service.

Even though demand for gasoline has fallen since summer, a weaker dollar has kept crude hovering between $81 and $83 a barrel this month, which is translating into higher prices at the pump. Crude, like most commodities, is priced in dollars. A weaker dollar makes it more attractive for buyers who use foreign currencies.

Higher gasoline prices shouldn't last much longer. There is plenty of oil on hand, while demand continues to wane and consumers don't seem willing to spend any more than necessary, according to Tom Kloza, chief oil analyst at the Oil Price Information Service. The Energy Information Administration said this week that gasoline consumption in the past four weeks was 1.12 percent less than it was a year ago in the midst of the recession.

The Labor Department said the Consumer Price Index--the inflation rate--rose 0.1 percent in September, compared with a 0.3 percent increase in August. Gas prices increased 0.7 percent last month.

Meanwhile, the government's Short-Term Energy Outlook indicated that most consumers should be able to keep heating bills under control this winter, although heating oil prices will rise. Americans who rely on heating oil are expected to pay about $220, or 12 percent, more this winter. Much of that is due to higher crude prices which have contributed to a 16 percent increase in wholesale heating oil prices from year-ago levels.

The EIA forecast a 4 percent increase in heating bills for households using natural gas, which translates to about $27 more for the winter. Supplies of natural gas, like oil, remain plentiful. Much of the country relies on natural gas for heating, while heating oil is used mainly in the Northeast.

In a research report for clients, Cameron Hanover energy consulting agency said traders see natural gas as the least desirable product in the energy market because of abundant supplies and weak demand in the recovering economy.

"The truth is that there is plenty of energy supply out there for the available demand, but oil prices tend to be able to get more from that than natural gas can," the report said.

Oil and other energy contracts fell as the dollar grew stronger and the economic picture remained unclear as banks struggled with the foreclosure crisis. Benchmark oil lost $1.44 to settle at $81.25 a barrel on the New York Mercantile Exchange.

In other Nymex trading, heating oil fell 5.31 cents to settle at $2.2308 a gallon, gasoline lost 3.27 cents to settle at $2.1038 a gallon and natural gas gave up 12.2 cents to settle at $3.535 per 1,000 cubic feet. Natural gas hit a 52-week low of $3.520 during the session.

In London, Brent crude dropped $1.75 to $82.45 a barrel on the ICE Futures exchange.

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Associated Press writers Barry Hatton in Lisbon, Portugal, and Alex Kennedy in Singapore contributed to this report.

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Filed by Nicole Hardesty  |