Ouch! Gas Prices Hit $3 A Gallon

High gas prices are posted at a Chevron gas station in Redwood City, Calif., Friday, Nov. 2, 2007. Chevron Corp.'s third-quarter profit plunged even further than analysts feared, driven by the second largest U.S. oil company's inability to recover its higher refining costs at the gasoline pump. (AP Photo/Paul Sakuma)
AP Photo/Paul Sakuma
Gasoline prices jumped back above $3 a gallon at the pump Monday even as oil prices waffled amid conflicting reports about the economy and crude supplies.

The spike may seem sudden, but gas prices are finally playing catch up with soaring crude prices, reports CBS News correspondent Anthony Mason.

Yes, $3 a gallon gas is back, though we're still well short of the all time high -- $3.22 set this past May.

But that could be tested soon, adds Mason, with crude rising relentlessly for the past month at the New York Mercantile Exchange and now threatening to crack $100 a barrel.

The national average price of a gallon of gas rose 1.5 cents overnight to $3.004, and has jumped almost 25 cents in three weeks, according to AAA and the Oil Price Information Service.

"The consumer has been relatively isolated from these prices," said Amanda Kurzendoerfer, commodities analyst at Summit Energy Services Inc. in Louisville, Ky.

But, she said, if oil prices don't retreat, gas prices could reach $3.50 or $4 a gallon by next summer.

Crude, meanwhile, pared earlier losses of more than $2 a barrel Monday after the Institute for Supply Management reported that the economy's services sector grew at a faster-than-expected rate in October. The report helped equity markets rebound from earlier lows, and moderated concerns about the economy driven by the situation at Citigroup Inc., which warned Sunday it would take additional losses of $8 billion to $11 billion due in part to its exposure to risky mortgage debt. The announcement came as Citigroup CEO Charles Prince resigned, and reignited worries that the problems facing the subprime mortgage industry could spread, affecting the broader economy.

"Weekend news that another top banking head handed in his resignation due to subprime woes ... is roiling the markets," said Edward Meir, an analyst at MF Global UK Ltd., in a research note.

Energy investors worry that a slowdown in the economy would curb demand for oil and petroleum products.

Light, sweet crude for December delivery fell 15 cents to $95.78 a barrel on the New York Mercantile Exchange Monday, but alternated frequently between gains and losses.

Other energy futures were mixed. The contract for December gasoline fell 2.35 cents to $2.416 a gallon on the Nymex, while December heating oil rose 0.28 cent to $2.5765 a gallon.

December natural gas fell 26.6 cents to $8.152 per 1,000 cubic feet. In London, December Brent crude fell 29 cents to $91.79 a barrel on the ICE Futures exchange.

Conflicting news on oil supplies and demand contributed to the market's uncertainty. Iraqi crude exports rose by nearly 200,000 barrels a day in October to 1.84 million barrels a day, according to PVM Oil Associates Ltd. in Vienna. In addition, Russian oil output rose 0.6 percent last month compared to the previous month, marking a new post-Soviet high of 9.93 billion barrels a day, PVM said.

A separate survey of analysts by Dow Jones Newswires suggests OPEC raised crude oil production in October by 1.24 percent, or 382,000 barrels from the previous month to 31.23 million barrels.

But the International Energy Agency on Monday said global crude oil demand will rise to 98 million barrels a day in 2015 from the 84 million barrels a day now, Dow Jones Newswires reported.

Prices were pressured Monday by an easing in tensions abroad. Kurdish rebels released eight Turkish soldiers Sunday, moderating concerns about whether Turkey will launch attacks on guerrilla bases in northern Iraq. Escalating tensions in the Middle East could disrupt oil supplies out of the region.

Despite Monday's swoon, analysts think some traders and investors will try to push oil prices to the psychologically important $100 level this week. Crude prices are within the range of inflation-adjusted highs set in early 1980. Depending on the how the adjustment is calculated, $38 a barrel then would be worth $96 to $103 or more today.

"I wouldn't see this sell-off today as the start of a correction," Kurzendoerfer said.

Nevertheless, the Washington Post reports that many veteran oil analysts see the current round of price increases as a bubble that could quickly burst in the face of increased production by OPEC, a warm winter, a slowdown in the economy or a decline in demand for gasoline.