Photograph by Reed Saxon, AP

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The average price for gas in the United States reached $3.82 Thursday, but in some places, such as this station in the Brentwood area of Los Angeles on August 10, the numbers have shot much higher.

Photograph by Reed Saxon, AP

Isaac Drives Spike in U.S. Gas Prices Ahead of Labor Day Weekend

U.S. gasoline prices are getting worse before they will get better, spurred by domestic refinery woes and the recent Gulf Coast storm.

A perfect storm of factors is producing record-high gasoline prices this Labor Day weekend, just as millions of motorists hit the road to catch the last breath of summer.

The U.S. national average for a gallon of regular gas hit $3.82 on Thursday according to AAA's tracking, jumping 7 cents in two days. Last year at this time, the average was $3.61.

"This week, the main factor that is driving up gas prices is the landfall of Hurricane Isaac in the Gulf Coast," said Michael Green, a spokesman for AAA. As the Category 1 slow-moving storm approached the region, many refineries were closed down so they wouldn't be damaged, stopping their gasoline production. "Whenever you see supplies drop, prices increase," Green said.

Isaac was downgraded to a tropical storm Wednesday and was traveling north Thursday. According to the U.S. Department of Energy, the storm affected 11 refineries with a combined production capacity of about 2.7 million barrels per day. Twelve percent of the Gulf Coast's refining capacity was shut down, which is about 5 percent of the U.S. total.

But Isaac is just the latest reason for higher prices at the pump.

Timothy Hess, an analyst for the U.S. Energy and Information Administration, said that over the course of the summer, an increase in crude oil costs has been driving up gasoline prices. "We've seen crude go up as some geopolitical tensions have risen over the summer, vis-à-vis Iran, along with some physical tightening of production."

Despite a summertime low on July 2 of $3.33 a gallon, "the price has gone up very significantly this summer," Green said. "It's a little unusual."

A series of regional events, or what Hess called "refinery hiccups," also have driven up the national average. They include a break in the Enbridge pipeline in the Midwest that forced it to shut down for several days in late July and early August, a fire August 6 at Chevron's refinery in the San Francisco Bay Area that caused West Coast supply problems, and now the Gulf Coast storm.

By Wednesday, seven states—California, Connecticut, Hawaii, Illinois, Michigan, Oregon, and Washington—had prices averaging more than $4 per gallon.

Though AAA has been seeing record highs in gas prices for each calendar day for the past week and half and noted that July's average was third-highest ever for that month, prices still haven't neared the all-time peak reached in the summer of 2008. On July 17 of that year, the national average reached $4.11.

"In terms of national all-time record, it certainly doesn't look like we're headed in that direction," the EIA's Hess said. However, "any kind of change in the crude oil markets could change that story."

The current price per gallon is still 14 cents behind the peak for the year so far. That came on April 5, when prices hit an average of $3.94 per gallon due to several factors, the biggest of which was an increase in crude prices because of tensions with Iran.

As predictions for the U.S. economy continue to change, volatility in the price of gasoline has persisted.

"The state of the economy and where people think the economy is headed is probably the largest single factor" for gas prices, Green said. "It's important to keep in mind that both crude oil and gas are sold in futures markets. If people think the economy is going to improve in the future, it has a major effect on gas prices—it helps drive them up."

Even though they're facing pain at the pump, 33 million Americans plan to travel this holiday weekend, according to AAA.

"That's the most since the 2008 recession," Green said. "Despite daily average gas prices being at record highs, it's not swaying people from taking a long trip over the holiday weekend."

Green said that's because research shows that Americans plan their Labor Day trips months in advance, so they're unlikely to scrap them because of gas prices. "No one wants to give up that travel they've been thinking of every day for the last two months," he said. "People find other ways to save money—not buying an extra souvenir or not going to quite as nice of a restaurant."

While prices are high for the holiday weekend, the good news is that experts expect them to drop as the summer driving season wraps up. Gas prices generally dip after Labor Day, thanks to reduced road travel and refineries switching to less expensive blends (by law, gasoline in summer months must be specially formulated to evaporate less). So far, no significant damage from Isaac to refining infrastructure in the Gulf has been reported, and operations are expected to resume within the next few days.

Still, prices likely will continue to break the daily average highs that AAA tracks. "We would continue to think that for much of 2012, the daily high will be the record for that day or close to it," Green said.

With the start of the general election season coming on the heels of the Labor Day weekend, that may mean a starring role for gas prices among the issues.

This story is part of a special series that explores energy issues. For more, visit The Great Energy Challenge.