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Gasoline rose to $3.99 a gallon at the pump, threatening to further shake the confidence of consumers whose spending makes up two-thirds of the economy, an industry survey showed.

The price climbed 20 cents on June 6 from three weeks earlier, according to oil-industry analyst Trilby Lundberg's survey of 7,000 filling stations nationwide. Gasoline futures rose 6.4 percent to $3.548 a gallon in New York on June 6 after reaching a record $3.565.

“There has never been a price like this,'' Lundberg said in an interview today. “Gasoline demand growth has been flat, now it is turning negative and price is the reason.''

Consumers are already rattled by falling home values and a weakening job market, prompting them to curb spending and threatening to halt the six-year expansion. Consumer confidence in May fell to a 28-year low, as inflation expectations rose to their highest in more than two decades, according to last month's Reuters/University of Michigan sentiment survey.

“The fact that confidence has gone down as inflation expectations are going up indicates gasoline has been an important driver because it's one of the reasons expectations are rising,'' Nigel Gault, chief U.S. economist at Global Insight Inc. in Lexington, Massachusetts, said.

Gault estimates that every sustained 20-cent gain in the price of gas shaves 0.3 percentage point off consumer spending growth. Economists surveyed by Bloomberg News in the first week of May forecast consumer spending this year will grow at a 1.5 percent rate, compared with 2.9 percent last year.

AAA Price

AAA, the nation's biggest motoring club, said today that regular gasoline at the pump reached a record $4.005 a gallon, up 28 percent from $3.119 a year earlier.

Gasoline prices have risen as inventories dropped more than 11 percent since March 7 to 209.1 million barrels, the Energy Department said June 4.

Crude oil for July delivery rose $10.75, or 8.4 percent, to settle at $138.54 a barrel June 6 on the New York Mercantile Exchange. The increase was the biggest gain in dollar terms ever and the largest on a percentage basis since June 1996. The cost of crude oil determines about 73 percent of the pump price of gasoline, according to the Energy Department.

Record gasoline prices are causing consumers to cut back on fuel purchases.

Gasoline Demand

U.S. gasoline demand fell 4.7 percent during the Memorial Day holiday week, a sign motorists are cutting consumption because of record prices, MasterCard Inc., the second-biggest credit-card company, said June 3 in its SpendingPulse report http://fcrwizard.com.

Gasoline demand compared with a year earlier has dropped in 16 of the past 19 reports from MasterCard. Demand typically climbs going into the summer months.

Record gasoline costs and lower home values caused consumer confidence in the U.S. economy to fall to the lowest level in nearly three decades. The Reuters/University of Michigan final index of consumer sentiment for May dropped to 59.8, compared with an average reading of 85.6 in 2007. It was the lowest level since June 1980.

“Consumers are painfully aware that their living standards are shrinking under the weight of higher food and fuel prices and see little hope for improvement any time soon,'' Richard Curtin, the director of the Reuters/University of Michigan survey, said in a statement May 30.

Carmakers' Woes

The economy lost 49,000 jobs in May, for a total 324,000 jobs lost so far this year, the Labor Department reported June 6. The unemployment rate jumped to 5.5 percent from 5 percent, its biggest monthly gain in more than two decades.

Carmakers in particular are struggling to adjust to the record gasoline prices and shifting consumer-buying patterns as they shun SUV's and other gas guzzlers.

General Motors Corp., the largest carmaker, said June 3 it will close four truck plants, make more small cars and consider selling its Hummer brand of large sport-utility vehicles.

“These higher gasoline prices are changing consumer behavior, and rapidly,'' Chief Executive Officer Rick Wagoner said at a press conference in Wilmington, Delaware. “We at GM don't think this is a spike or temporary shift.''

The U.S. gasoline supply may increase over the next month as higher profit margins cause refiners to turn more crude oil into gasoline.

The margin for turning a barrel of crude oil into one barrel of gasoline has increased 22 percent since May 1 to $10.467 a barrel, based on futures prices.

Lower refinery profit margins last month reduced the incentive for refiners to process oil into products including gasoline and diesel fuel.

The highest average price for self-serve regular gasoline was $4.41 a gallon in Stockton, California, Lundberg said. The lowest was in Wichita, Kansas at $3.65 a gallon. On New York's Long Island, the price was $4.21 a gallon.

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Filed under: legal by Finance Boss