Gas Prices Inch Higher

Food Fight
Iraqis surge toward a military truck in an attempt to get boxes of food and blankets handed out by the 82nd Airborne Division's 1st Battalion, 325th Infantry Regiment Tuesday, June 26, 2007, in the Hurriyah neighborhood of Baghdad. The soldiers tried to keep the distribution of orderly, but crowds soon turned chaotic, forcing many to leave empty handed.
GETTY IMAGES/Chris Hondros

Drivers are paying more for gasoline during this Labor Day weekend.

The American Petroleum Institute says gasoline prices were up for a third straight week in the seven-day period ended August 24th.

Retail regular averaged more than $1.48 a gallon nationally. That's a jump of 11.2 cents a gallon since prices hit a 17-month low in early August.

But gasoline is still less expensive than when it peaked in May at more than $1.71 a gallon.

CBS News correspondent Randall Pinkston says the rise is due to a number of factors including OPEC production cuts, unplanned refinery outages and the requirements for specialized types of reformulated gasoline in several Midwestern markets.

Prices are up less than a penny from a year ago. But industry data released late Tuesday showed U.S. inventories of gasoline dwindling significantly ahead of the holiday weekend, a possible harbinger of even more price hikes.

Click here for a state-by-state rundown of gas prices

The A.P.I.reported that U.S. gasoline supplies shrank by 6.7 million barrels in the past week to 196.2 million barrels, or 3 million barrels below levels a year ago.

"If you're a refiner, it's a glorious end to the driving season," said Tom Kloza, director of Oil Pricing Information Service, a Lakewood, N.J., publisher of oil industry data. "If you're a consumer, you're probably annoyed."

Also on Tuesday, the Environmental Protection Agency temporarily relaxed air-quality standards on gasoline produced and sold by Citgo Petroleum Corp. in the Midwest in an attempt to alleviate a recent price spike in the region.

Citgo will be allowed to sell retailers in Chicago and Milwaukee a blend of gasoline that meets the less stringent requirements for the remainder of the summer driving season.

In exchange, the EPA said Citgo will have to pay the Treasury Department about 14 cents for every gallon it sells of the lower grade gasoline, which is cheaper to manufacture.

The move is intended to help Citgo make up for a production shortfall that began when a fire forced the Tulsa, Okla.-based company to close its 160,000 barrel-a-day refinery in Lemont, Ill.

CBS News Correspondent Cynthia Bowers reports the spectacular fire is largely blamed for the price spikes. The refinery supplied a big chunk of the area's fuel, so it's understandable there's been an impact in the area, but the refinery shutdown could have a ripple effect on prices across the country.

"We're taking product from the Gulf Coast or even East Coast sending it to the Midwest and it's making the difference between let's say a little mini glut of product in those coastal markets and a little bit of a tightness in gasoline as we approach Labor Day," explained Tom Kloza of the Oil Price Information Service.

Drivers in Chicao and Milwaukee are paying, on average, 22 cents more for a gallon of gasoline than they did the same time a year ago, according to the Energy Information Administration, the statistical arm of the Energy Department.

California could be the next in line looking to Washington for help. Wholesale prices, what gas stations pay, are up 50 cents this month as traders get skittish again about possible power problems.

Citgo will be allowed to sell gasoline with a less stringent vapor pressure standard, which is intended to reduce the release of volatile organic compounds into the air. The compounds contribute to the formation of smog.

The EPA action "demonstrates what can quickly be accomplished when governmental agencies and the private sector work in close cooperation," said W.A. DeVore, senior vice president of supply and marketing at Citgo.

Citgo, which is owned by PDV America Inc., a subsidiary of Venezuela's state-owned Petroleos de Venezuela SA, can sell the lower grade product at its own branded stations and to other independent retailers.

"The intent of this is to level the playing field economically for Citgo," said Bruce Buckheit, the EPA's director of air enforcement division. "We're not allowing other refiners to do the same thing."

Buckheit said the impact to the environment would be minimal.

©MMI CBS Worldwide Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report