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7:33 AM Thu, Nov. 15th

Quantitative rising of gas prices expected

Federal Reserve policy could lead to pain at the pump in near future

KINGMAN - As 2010 enters the home stretch, motorists preparing for the Thanksgiving holiday can expect about 12 percent more traffic out on the roads than they saw last year, thanks to a slowly recovering consumer base and relatively stable gas prices. But those prices could be set to rise in 2011 following the Federal Reserve's announcement this month that it plans to purchase $600 billion in long-term treasury bonds through the third quarter of next year to try to stimulate the moribund U.S. economy.

Gas prices in Arizona have spent the past 12 months within the same 30-cent range of $2.60 and $2.90 a gallon, with the current state price averaging $2.779. Gasoline last peaked around the time of the BP Gulf oil spill in April, with prices topping $2.89 in Arizona, later bottoming out in September, when they fell to a statewide average of $2.67.

Lately, however, gas has been on the way back up, particularly after the Fed announcement this month. According to AAA Arizona spokeswoman Michelle Donati, one of the main reasons for the recent increase in gas prices has been the fear that the Fed strategy, dubbed "quantitative easing," could result in a weaker dollar and thus, higher costs for commodities such as cotton, gold and crude oil - the main component in gasoline.

"We've really seen the price of fuel shy away from the traditional average of supply and demand, and instead it's been following the price of the dollar, and a weakened dollar results in a higher fuel price," Donati said. "We saw the price of crude oil increase to a two-year high a couple of weeks ago - it was trading at the near $90 per barrel mark."

That price has since eased slightly once the novelty of the Fed's announcement wore off, and oil has since fallen back to the low $80s - for now, at least. But once quantitative easing swings into full gear next year, the price could resume its climb.

Compounding the problem is the fact that, if the Fed's strategy does work and the economy does show more robust improvement next year, the resulting increase in demand for gas could also raise the price since, Donati said, Americans have still not addressed their underlying reliance on petroleum-based fuels. Instead, she said, demand simply collapsed following the $4-a-gallon spike of mid-2008, and has yet to recover. Once demand does recover, she said, prices won't be far behind.

"There's still the recovery that's taking place in terms of demand," she said. "Demand's been relatively flat since the recession started."

As of Monday afternoon, gas prices in Kingman averaged about $2.80 per gallon, slightly above the statewide average. Individual gas station prices varied widely, however, ranging from $2.559 on the low end to $3.099 at the upper end. Flagstaff has the highest gas prices among major Arizona metro areas, with regular unleaded averaging $2.904 there, while Tucson holds the lowest average of just $2.671 per gallon, owing to its role as the state's main distribution point for refined gasoline pipelines.

Nationwide, gas prices averaged $2.872 per gallon Monday. Regionally, the Northeast and West Coast were experiencing higher-than-average costs while the South Central states received the cheapest gas.

The lowest prices can currently be found in Missouri, which averaged $2.659 per gallon Monday. California, conversely, had the highest average gas price, with motorists in the Golden State paying their fair share of it at $3.146 per gallon.