The strain on your wallet comes despite ample gasoline supplies and weak demand in the US, putting the brakes on the typical economic model of supply and demand.

The cause of the burn in your wallet and less in the tank are the concerns over shrinking refining capacity in the US, mainly on the US Atlantic Coast, that is being bolstered by improving US employment data (go figure!) and geopolitical turmoil, mostly involving Iran.

In the futures market, front-month RBOB reached its highest level in nearly seven months Tuesday at $3.0586/gal, having been on an upward trajectory since hitting a low of $2.4733/gal on December 16, 2011.

At the retail level, the average price for regular gasoline was at $3.570/gal Tuesday, according to AAA's daily fuel gage report, up about 40 cents/gal from a year-ago. The price is still below the highest recorded averaged price for regular gasoline at $4.114/gal on July 17, 2008.

Stephen Shork, president of the Schork Report, said consumers will start to respond to prices that reach above $3.50/gal and over $4/gal is when demand destruction will set in.

"It's a constant roller coaster and with the Brent market people are running scared," Schork said. "We're on a cycle where crude is on a tear" where refining margins are poor and crude is expensive.

Since the start of the year, front-month RBOB futures have risen more than 10%, while on the retail level, the average price for regular gasoline has jumped nearly 7% since the new year, according to data from the US Energy Information Administration. But demand is dismal.

US gasoline demand was down 7% for the week ending February 10 from a year-ago period, according to EIA data, while US retail gasoline demand dropped 5.4% year-on-year for the same reporting week, data released February 14 by MasterCard Advisors showed.

"There could be some seasonal pick-up in demand as we head into the spring but the macro story is refining industry rationalization and the potential closure of refineries in the US as well as the Caribbean," said John Kilduff, partner at Again Capital. "There are fears about what that will mean, particularly in the Northeast, if potential sales of refiners fall through and onus is on two refiners and there is no room for error."

Capacity in the US East Coast/Atlantic Basin will tighten by more than 1 million b/d after Hess and PDVSA close their jointly owned 350,000 b/d Hovensa plant in the Virgin Islands. Sunoco has idled the main processing units at its 175,000 b/d refinery in Marcus Hook, Pennsylvania, and its 330,000 b/d Philadelphia plant is set for closure in July if no buyer is found.

In addition, ConocoPhillips has idled its 185,000 b/d Trainer refinery in New Jersey while seeking a buyer. That lost East Coast capacity would be on top of the already shut 140,000 b/d Eagle Point Refinery in Westville, New Jersey, and Western Refining's 128,000 b/d Yorktown, Virginia, refinery.

Add to that the recent European refinery shutdowns by Petroplus--also on poor margins--and the picture looks more bullish for gasoline.

"The East Coast will be that much more vulnerable to pipeline constraints and refinery closures in the future," Kilduff said, who estimates that front-month RBOB futures could climb to around $4.15/gal into the April/May timeframe.

And while more Americans are getting back to work, they are paying more to drive there as a correlation is seen between gasoline prices and US employment figures.

"[Gasoline] prices have been pulled higher along with a good fall in initial jobless claims and unemployment moving lower," said Edward Meir, senior commodity analyst at INTL FCStone. "Despite high pump prices and lackluster US motorist demand, investors seem to be comfortable pushing prices upwards given the much-improved macro situation in the US."

Initial claims for US unemployment benefits fell to a near four-year low for the week ending February 11 to 348,000, down 13,000 from the prior week, the Labor Department said February 16.

Earlier this month, the Bureau of Labor Statistics said the US unemployment rate fell 0.2 points to 8.3% in January.

The "stunning" report, noted analysts, led to a spike in oil and equity futures.

Still, RBOB is facing even more upside factors and volatility as it takes its cue from Brent futures and continued fears of supply disruptions as tensions between Iran and west escalate against a backdrop of ongoing supply outages in South Sudan, Yemen and Syria.

ICE April Brent futures rallied to a $121.15/ barrel high Monday -- the front-month contract's highest level since June 15, 2011.

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