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Fuel Prices Continuing a Steady Upward Climb

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February 22, 2011 by   1 Comment

It’s been such a steady climb that gasoline prices have reached the highest levels since 2008, when they broke $4 per gallon in many U.S. cities, with little fanfare, the Chicago Tribune reported.

The national average retail price for regular-grade gasoline broke through the $3-a-gallon mark around New Year’s and climbed about 4.5%, to $3.14, by Valentine’s Day, according to data from the federal Energy Information Administration (EIA).

“Prices crept up like 20 cents in a few months, but it’s been a very quiet thing,” said Michael Lynch, president of energy consulting firm Strategic Energy & Economic Research. Quiet, but still in the forefront. After all, the numbers are posted on huge signs at most every busy intersection, Green said, and are widely available on the Internet.

“If they posted the price of bread or milk in big numbers, you might get upset when they rose too,” he said. Particularly because, like bread and milk, gas figures into most consumers’ everyday lives, with no alternatives, Green said.

“And there’s a visceral reaction when prices reach a milestone, like $3 a gallon and other round-number prices,” he said. “A lot of it is psychological.”

Still, for high-mileage drivers on a tight budget, gas price increases have a real impact.

“The more people have to pay for gasoline, the less they’re going to spend in other areas,” Green said. That has an effect not only at the household level but also for the U.S. economy, two-thirds of which depends on consumer spending, he said.

Prices are up 50 cents per gallon from a year ago, which translates into an extra $300 in annual gasoline costs if driving 15,000 miles in a vehicle that gets 25 mpg.

And they aren’t likely to go down anytime soon.

“We see prices continuing to increase through the spring and summer,” said EIA economist Neil Gamson. “We don’t see prices under $3 for the next two years.”

Though they aren’t likely to spike, either, not like 2008, when price jumps of 20 cents per month were common. The EIA sees only a 1-in-10 chance of gas returning to $4 a gallon this summer.

Lynch agrees. “I don’t think we’ll see $3.50 or $4 this year or next. And $5 is a little crazy.”

Still, conditions are ripe for higher prices: Demand for crude oil, the main component for gasoline, is rising in large, quickly developing countries such as China, India and Brazil, Gamson said. In China, for example, oil consumption has risen to 8.2 million barrels per day in 2009 from 1.7 million in 1980, according to data from the EIA and the CIA.

Even the U.S. appetite for oil is returning as the economy picks up, Gamson said.

Weather was cited for price spikes earlier in the winter, as low temperatures drove increased demand for home heating oil, another crude derivative, in the Northeast and Europe, he said.

Then there’s the annual shutdowns of U.S. refineries for maintenance, which temporarily reduces supply, and the switch from winter to summer gas formulations, which increase prices slightly because of additives to address emissions, said Troy Green, spokesman for AAA.

And Americans simply drive more in the spring and summer.

“People drive more when the weather is warmer and better,” Green said.

The Middle East, a major source of oil, is the wild card. Political unrest in Egypt played havoc with crude prices recently because of its location as a transit hub for global oil supply, home to the Suez Canal and a major Mediterranean oil pipeline.

For a similar geopolitical reason, oil prices rose Wednesday after reports that Iran was moving warships through the canal en route to Syria.

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Comments

One Response to “Fuel Prices Continuing a Steady Upward Climb”

  1. Tom on February 22nd, 2011 3:41 pm

    And we won’t be making the 5th wheel purchase we planned for this spring either until things settle down in the Mid East and we see where fuel prices go.

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