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Gas prices follow the price of oil higher

Some of the price pressure could fade as investors take a closer look at an OPEC deal that hasn't even yet entered into force.

By
Daniel J. Graeber
Retail gasoline prices spike in response to OPEC-fueled rally in crude oil prices, though some analysts are questioning whether or not the trend will hold. Photo by Gary I Rothstein/UPI.
Retail gasoline prices spike in response to OPEC-fueled rally in crude oil prices, though some analysts are questioning whether or not the trend will hold. Photo by Gary I Rothstein/UPI. | License Photo

WASHINGTON, Dec. 6 (UPI) -- U.S. gasoline prices are rising alongside oil prices that rallied on the back of an OPEC production deal, though retail analysts are questioning the duration.

Motor club AAA reports a national average retail price for a gallon of regular unleaded gasoline at $2.18 for Tuesday, up about 2.6 percent, or 5 cents per gallon, from last week and 6.8 percent, or 14 cents, higher than this date in 2015.

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The spike in retail gas prices is in direct response to the rally in crude oil prices sparked by last week's decision from the Organization of Petroleum Exporting Countries to hold production steady at around 32.5 million barrels per day. Based on current levels, that level would have to come from production cuts, something OPEC hasn't done in nearly a decade.

"Markets reacted quickly to the production agreement with crude oil gaining 12 percent and leading to increased retail prices [for gasoline]," the motor club said in its weekly retail market report.

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Regional trends paint a mixed picture across the country. West coast states, which typically have the highest prices in the country, are the only ones that saw gas prices move in the opposition direction from crude oil prices. California has the highest state average in the Lower 48 at $2.66 per gallon, down 1 cent from last week and 3 cents from last year.

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States in the Great Lakes region, typically the most volatile in the country, held true to form by posting the largest price increases in the country.

"That is despite adequate supply in the region, which is likely to get a boost this week," AAA reported. BP's largest refinery in the region, which has suffered chronic outages over the year, is back up and running at full capacity and that should bring relief to consumers at the pump. Michigan has the highest regional state average at $2.20 per gallon.

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Gas prices typically fall in the waning months of the year. The national average price reported by AAA is 1.8 percent, or 4 cents, lower than one month ago.

Patrick DeHaan, a senior analyst at price-watcher GasBuddy.com, said gas prices could still be higher than last year in relative terms, but the frenzy may fade as investors take a wait-and-see approach to OPEC's actual commitment to a deal that doesn't go into force until January.

"For now, oil markets have bid up oil prices in a fury believing the agreement, which comes in to force in January, is exactly what's needed to balance supply and demand," he said in an emailed report. "I, however, believe this rally represents a balloon that's filled with too much air and risks a correction (popping the balloon) that may be seen in due time."

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