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In case you haven’t noticed, gas prices have been shooting up over the past few weeks. The runup has been driven by increased demand, as consumption is increasing twice as fast as last year, and it will likely accelerate in late May when the summer driving season begins. According to James Mulva, CEO of ConocoPhillips, “Weâ€™re surprised by … the increased demand. Even though the price of gasoline is up, the demand is up.”
Hoping for a reprieve as consumers scale back on their driving and opt for more efficient cars? Don’t hold your breath. According to David Pursell of Pickering Energy Partners, “Last year, we had pump prices well over $3 for the summer and gasoline demand was up. Would $4 gasoline cause demand contraction? I think it will, but I also thought $3 gasoline would.â€
The real problem here (in my opinion) is that we’ve created a society in which driving isn’t optional. And unfortunately, fuel economy standards in the U.S. have lagged behind the rest of the world, meaning that we’re driving an inefficient fleet of gas hogs. The end result is that, no matter how high prices go, people will be forced to simply suck it up and pay them unless we make some major changes. Of course, money is a huge motivator, so maybe some good will come of this. Okay, end of rant. Back to your regularly scheduled programming…
It’s not just increased demand that’s causing the runup. It also seems that the supply side has been struggling as of late:
Gasoline inventories, measured by the days of demand they will cover, are at the lowest level in two decades for this time of year because of refinery fires, power failures and maintenance work oil companies failed to complete in 2006. No new U.S. refinery has been built in three decades, increasing the strain on existing plants.
Peter Beutel, an analyst at Cameron Hanover, Inc. thinks prices could threaten the $4/gallon mark if we have an active hurricane season. And we’re talking about a legitimate $4/gallon this time around, not a scam like they were running in Orlando.
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