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Fuel Prices on the Rise; $4/Gallon in the Near Future?

Written by Nickel - 14 Comments

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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, “We’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.”

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.

[Source: Telegram.com]

Published on April 24th, 2007 - 14 Comments
Filed under: Automotive,Economy,Energy

About the author: is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!

Comments (scroll down to add your own):

  1. I heard on the news this morning that gas is $4/gallon in a spot in Florida (can’t remember exactly where).

    While I will moan occasionally about the prices, when gas prices go up good things can happen from it. It forces us to be more innovative/resourceful to keep money in our wallets.

    Comment by Anonymous — Apr 24th 2007 @ 11:24 am
  2. Yeah, I posted that this morning. See here.

    Comment by Nickel — Apr 24th 2007 @ 11:39 am
  3. We are practically at $4…$3.89 as of yesterday. I know its not a PC thing to say, but I think a lot of good will come out of gas prices being high, and maybe they should stay high for a while. Make people think…

    Comment by Anonymous — Apr 24th 2007 @ 11:45 am
  4. David, that’s what happened last year, and as soon as they went back down everybody forgot what they were thinking about. The only net change was that we were now used to spending about 50 cents to a dollar more before we’d start thinking about complaining about it.

    Comment by Anonymous — Apr 24th 2007 @ 12:08 pm
  5. Short term there is a strong relationship between the spot unleaded gasoline price at Nymex and the retail price at the pump – strong enough for me to model it successfully and make 3 day predictions about gas prices. It won’t save you 5 cents but on average by varying WHEN to buy gas within any 3 period you save 2 cents/gallon according to me. Not a lot I know but money matters. Besides its a way of “doing something about it”.

    -K

    Comment by Anonymous — Apr 24th 2007 @ 12:40 pm
  6. adjusted for inflation, gas prices aren’t that high and given the current tightness in the market they should be much higher. The only way for true change to happen and for the country to lessen our “addiction to oil” is for the price to continue to increase so that alternatives become economically justifiable. Things need to and will change, it is just a question of when and how bad will it hurt.

    Comment by Anonymous — Apr 24th 2007 @ 12:47 pm
  7. >we’ve created a society in which driving isn’t optional

    An environmentally-oriented research group did a study on this a few years back. IIRC gas would have to rise to >$5 gallon (in 2005 dollars) for structural changes to become politically feasible. The downside of capital markets is that they are mostly nearsighted.

    Comment by Anonymous — Apr 24th 2007 @ 10:29 pm
  8. Driving to the lakehouse is gonna be a bit more painful this year (70 miles round trip)

    Comment by Anonymous — Apr 24th 2007 @ 10:31 pm
  9. High gas prices reward those who choose to limit their driving. This is an incredible incentive for those who wish to save money as well as conserve our planet’s precious resources.

    Comment by Anonymous — Apr 25th 2007 @ 12:08 am
  10. That part about refinery supply being tight makes me want to scream. The big five oil companies own 60% of U.S. refinery capacity. Since 1995, refinery capacity has shrunk by 970,000 barrels of oil per day and 97% of that loss was from small, independent refiners.

    When was the last time a refinery was built? In my opinion, gas prices are high because big oil is withholding supply.

    Comment by Anonymous — Apr 25th 2007 @ 9:13 am
  11. That’s right – gasoline prices are shooting up! And guess what? Oil companies are saying it’s going to be another year of record profits!

    Go team oil!

    Comment by Anonymous — Apr 25th 2007 @ 1:12 pm
  12. Its crazy all these prices going up. Here is a funny story for you. I filled my car up today cost $20 only half the tank where as back in 97 you could fill the whole tank to the brim on cars for $20

    Comment by Anonymous — Apr 28th 2007 @ 8:15 pm
  13. I don’t know about your state but a large part of the cost of gas is local taxes.

    Comment by Anonymous — Sep 17th 2007 @ 9:32 am
  14. OK… look at this.

    http://en.wikipedia.org/wiki/Gasoline_usage_and_pricing

    Any comments?

    Comment by Anonymous — Jan 7th 2008 @ 1:10 pm

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