Pumped-up prices: $4 per gallon gasoline may be coming in 2010
Has this been a trying decade for the average American, or what? It's bad enough that we've have had to cope with stagnant wages and tax increases at just about every level. But in the months ahead, we may have to deal with yet another nightmare: surging gasoline prices. Factors are lining up that could end up pushing gas prices back over $4 per gallon sometime next year. If you're already exasperated about prices at the pump, you're not the only one. Gasoline demand in 2009 has been comparatively low -- take 7.6 million Americans out of the workforce through layoffs -- yet gasoline's price has gone up, not down.
It's risen about 20 cents per gallon in the past month to a U.S. average price of $2.65 per gallon for unleaded regular, according to data compiled by gasbuddy.com. This, when we're heading into December and the winter season -- a time when gasoline demand historically has been at its lowest.
Gasoline demand down, but the price is up. What's going on here? Well, part of the reason is the price of oil, currently around $80 per barrel. Oil -- boosted by the weak dollar and by likely increasing global oil demand during the economic recovery -- has essentially doubled since hitting a post-leverage boom low of about $35 per barrel a year ago.
The other part concerns the business of refining and the nation's refinery system. With oil prices high and gasoline demand low, the "crack spread" -- basically the difference between what refiners pay for oil and the total revenue received for products created from a barrel of crude -- has been low. That's prompted many refineries to reduce capacity: if a refiner can't earn a decent profit refining crude into gasoline (and other products), the company stops refining it.
According to U.S. Energy Information Agency data, refinery capacity utilization was at 80.6% for the week ending Oct. 30, compared to 81.8% for the week ending Oct. 23. Even allowing for normal, seasonal maintenance that decreases refining output, capacity utilization, in normal times, would be closer to 90%. That reduced refining activity also has helped boost gasoline's price.
But the real problem with the above concerns the gasoline market's condition when demand ramps up for seasonal (summer driving) and cyclical (at some point, the U.S. economy will start creating jobs) reasons. Assuming oil prices remain at a high level ($70 to $80 per gallon), rising gasoline demand will cause prices at the pump to jump about 40 cents to 50 cents per gallon.
The spike could be larger in high-cost metro areas like New York, Boston, Los Angeles and San Francisco. A $3.25 national average for unleaded regular would occur in short order.
And there are more-sobering scenarios. Patrick Kerr, managing director of Amerifutures, a commodity and options broker, told DailyFinance Wednesday that $3.25 per gallon could prove to be a low price in the quarters ahead, if the factors he argues are boosting gasoline prices remain in place.
Kerr said six factors are likely to continue to put upward pressure on gasoline prices in the U.S.: 1) more weakness in the dollar 2) increasing oil demand in China, 3) no readily available vehicle fuel substitute for gasoline in the U.S., 4) geopolitical tension, 5) inelastic gasoline demand in the U.S. (people can reduce gasoline consumption only so much), and 6) a lack of new, more efficient refineries in the U.S.
"A $4-per-gallon price is possible by the end of this year, but I think we'll definitely see $4 per gallon in 2010," Kerr said.
The United States is heavily dependent on gasoline. Although alternate fuels are gaining market share, gasoline will continue to make up the bulk of the U.S. residential transportation budget. That points to the need to increase vehicle efficiency. Absent increased efficiency and conservation (reduced driving), consumers' disposable income will be reduced even more, which will act as a drag on U.S. gross domestic product growth.
Bottom Line: Any national economic policy that assumes -- or counts on -- low gasoline prices long-term is inherently flawed.



























Reader Comments (Page 1 of 26)
11-12-2009 @ 8:29AM
jessie said...
if oil goes anywhere near 3 dollars a gallon, I could see us hitting a depression, all of the mumbo jumbo that was said in the article comes to the conclussion that 1 oil companies 2 speculators 3 government, all do not care on what happens to the economy of this country
Reply
11-12-2009 @ 11:01AM
bobjimflys said...
The US dollar is falling fast, how fast, the head of the Japanese Banking System said if the United States passes the Health Care Bill with no way to pay for it, the dollar will lose 50% of its value from 2009 to 2011, just a little more than one year. That equates to everything that we buy abroad/Import will double in cost in the next year. Gas will easily be over $5.00 a gallon soon. I do not know about you, but that is going to change my life significantly.
All prices are going to go up dramatically. Sad times ahead. thank you
11-12-2009 @ 12:11PM
pete said...
Jessie, I don't know where you live, but gas has been $3.00 to $3.25 here for the past year. Used to be I could walk to the store and get grocries. Now groceries are so high due to gas prices, I've had to cut back. My diet is no longer filled with fruits and veggies, but now consists of what ever I can afford, be it canned, grown, or none at all.
In this country, with all it's resources, there is NO reason gas should be more than $1.00 per gallon. NONE!
We need to elect real leaders who will put the needs of the people first, not wannabes who believe "... the U.S. is the greatest country in the world, and I hope you will join me in changing it."
11-12-2009 @ 2:13PM
dan said...
When Republicans start being Teddy Roosevelt Republicans, and the corporate Democrats start being Democrats is when they start breaking up the trusts, corporations like health insurance, oil companies, box stores etc., and let free enterprise work in the US, is when annual incomes start to grow with production. This means we start by raising some of our tariffs from the ridiculously low 2% to something that will protect our new economy of industrial jobs is when we start to grow our GDP and create real jobs. When the ratio of GNP to imports and exports becomes in balance is when we will be balanced and our debt will be paid down, further and faster, due to more taxes being collected. We cannot inflate the bubble again in the housing sector because that will lead to risky loan behavior, which is a false economy, and will lead to another recession-depression. 70% of the economy hinges on the consumer and until there are good incomes for the middle class, all bets are off for the future if we don't come up with an economic industrial plan to balance our import to export ratio. Any folly otherwise is pure greed perpetuated by Wall Street Bankers and multinational corporations that have no allegiance to our national economic interests. The Republican fascist behavior is protecting the too large to fail Wall Street banks and corporations, foreign or domestic, protecting the status quo by restricting government intervention, making it easy for them to stay in control of America's Economy and worker incomes. Government's job should be to keep out of the way when competition works, and inject itself when it becomes apparent that a corporation becomes too dominant inside our borders as well as outside our borders, obstructing free market practices; providing a democratic free market to protect America's interests first for national security and economic stability........
11-12-2009 @ 2:55PM
ORIGEN said...
The biggest hole in this story is the ASSUMPTION the author is making concerning the US creating jobs. How? Where? When? 6.1 people per job opening and growing.
11-12-2009 @ 3:52PM
Paul Del said...
It all boils down to supply and demand, China is expanding their economy at a fast rate, it is are fault why gasoline keeps going up, status means driving gas guzzlers, we just keep on buying them, it is not the governments fault, we always blame them if prices rise, what about conservation?, I have a 1990 Toyota that gets 43 miles a gallon, it has a 108hp engine that can easily hit 100mph in 5th gear, we are the problem, change is the only way to get lower gas prices, we are slowly becoming a third world country
11-12-2009 @ 3:57PM
Neighbor said...
Go ahead! bring in the $4 gas.....let's make it 5 or 6......Then let's see how long congress and our dumb... president lasts. No jobs, refineries manipulating prices already by cutting supply, holidays around the corner, Wall street traitors dancing in the streets with there bonus checks in hand, Banks retelling stories of glory days ahead....Once upon a time gas was cheaper than dirt. Then came a thing called the oil embargo. Gas was still cheap, just rationed. But that gave us a rude awakening to a wolf wearing sheep clothes. OPEC. It's always been easy to blame opec but the reality hiding in the back rooms was a shift to commodities trading. This has long been a slow cancer that has gone undetected and needs to be removed. Look what it's done to gas, corn, housing, gold, meats, even the once mighty dollar. We no longer lived as a local economy, instead Wall Street says let's go global, CEO's said let's blow profit expectations out of the water and export our manufacturing base overseas, Walmart no longer says made in USA, they say made in china but sold to your neighbors, by your neighbors, for minimum wage. We don't dare bring our troops home. What honor is there for the job they are doing if they can't even find a job to come home to? Our current president and the past ones before him are nothing but lap dogs to Wall Street. Imagine if your utilities were as unregulated as your commodities. If your electric and water rates were allowed to change as fast as your gas prices? Real change needs to happen and not by false hope and promises. Real change begins by bringing jobs back. Doing an honest days work for an honest days pay. Helping those in need greater than your own. Breaking up companies so there is never again a to big to fail. They broke up the bells years ago, they can break up the goldman or the bank of america. If Boeing wants to move to china, tell them to get the hell out of here now so a real company can step in and take there govt. contracts and build a real plane again. No More we invent it so tiawan can make it to sell to a generation of nintendo kids. Kick the kids out and make them get there hands dirty, ride a bicycle, and do chores!
11-12-2009 @ 4:12PM
tj said...
Your 100% right , it's like the government doesn't want thing to get better !
11-12-2009 @ 5:31PM
Paul said...
Heck, it's already over $3- / Gal here in Calif,.. but we're special here,.. screwed up state govn't, screwed up politics,
I want to leave this Boxer, Pelosi, Fienstien meca as fast as I can!
11-12-2009 @ 6:37PM
C Greene said...
I think you are going to see over three dollar a gallon sooner than you think. My price today is $3.299 a gallon and I think it will go even higher. I also know people in AMERICA paying $3.659 a gallon right now. Four plus a gallon is just around the corner for us. I try to only fill my tank once a month and sometimes I have to add a little extra.
11-12-2009 @ 11:43PM
john said...
((this isnt a reply to you jessie i just want people to read this.))********if i remember gas rose during bushs watch ..Obama hasnt even been in office for a year. it isnt his fault this is just the tail end of the long 8 years of deregulation policies Bush Supported. and now we are in a tail spin. and cant stop. while the rich were only concerned on gettin richer, no one was watching for the good of everyone the past eight years... i think Obama was a better choice, than MCCAIN that swore to us as if we were stupid that "THE FUNDAMENTALS OF THE ECONOMY ARE SOUND".. HAHA and uneducated SARAH PAILIN.. watch some videos of here on youtube during the campaign. embarrassing.
11-12-2009 @ 8:37AM
olds355 said...
I own a trucking company. Fuel is going up and it has for the past 4 months, dont know why everyone now is seeing it. I will pass this to you the consumers this time. Last hike we held off and bit it, but because of Obamas weak dollar I wont eat this anymore, its going to you who voted this crap into office. So when you shop till you drop thats what its going to be when you see the prices, soory, but the cost of running trucks gets higher and higher. Most of us did not wont to hurt you the consumer, but whos looking out for us?Obamas not going to trickle anything my way for sure, so I hate to say it , its not my culture core values speaking but every man for himself, thats the new america culture speaking.
Reply
11-12-2009 @ 10:22AM
vaughnvdg said...
As if all of your troubles started when OBAMA took office. GIVE ME A BREAK!!! When DUMBYA BUSH was in office gas was $5 a gallon because he was letting his BIG OIL BUDDIES GOUGE THE AMERICAN CONSUMER. What were you saying then?
11-12-2009 @ 1:32PM
chris said...
Olds355. . . Soundds like the country bumkins we have out here. . .You people keep forgetting that when you 'blame' Obama for high energy prices and the weak dollar, your basically saying, "I am an uniformed idiot." Obama inherited this mess and has been trying to get the US back on track. He has been in office less than a year. Again, your bias or blame places you in the "I really don't know what the he^% I am talking about," catagory. This mess was started over a decade ago when Clinton deregulated the banking system. Then came Bush and the overlooked, underwatched Wall Street. Now for gas prices, you have demand low but prices climbing. . .again Wall Street trying to make BIG returns on their investors money. . .I mean the rich people's money who are taking the middle to lower class' only avail. $'s left. . .get real man. . .sell your business and move to Canada, but most important of all, blame the right people. . .Reagan, Bush, Clinton, Bush (x2). . .not one of them risked their political/party future by doing what was right, tough. . .15+ years of economic boom based on BS economics. . .we were bound to crash sometime. . .idiots!
11-12-2009 @ 3:17PM
geald kauffman said...
We need to blame all politicians. Obama is just a puppet.We need to elect all new senators and congressman.
11-12-2009 @ 3:24PM
Aleta said...
I totally understand where you're coming from. My brother is an o/o, every week expenses are higher, miles are fewer and his income smaller.
I own a security agency. When Obama got nominated the bottom started to fall out of my business which was primarily oil and gas industry jobs. Now my oil and gas accounts are totally gone. I had no choice but to lay off 34 guards. Unfortunately, I can't increase my rates. I've had to lower them to keep 3 little accounts that barely break even.
Obama and his economics stink.
11-12-2009 @ 9:35PM
jessie said...
never blamed obama, just like I never blamed bush, congress has ALOT more to do with that than, either president ever did, our biggest problems was when the LIEberals took over congress (look at the time line) you remember, the ones that were going to do something about the high price of gas? they did, they made it go higher. in 2006 oil was about 50 a barrel, there was a gas spike for katrina (1.76 a gallon) but gas came down a few weeks later, then the dems took over and around february 2007 oil and gas steadily went up
11-12-2009 @ 8:38AM
paul said...
sounds like the media is trying to drive prices.I thing this could be insider trading
Reply
11-12-2009 @ 10:12AM
Bob van der Valk said...
Today forecasting crude oil prices is like trying to drive a car while looking out of the back window. The latest number of what it costs to drill for and bring crude oil to the surface in the deepest part of the Gulf of Mexico is around $40 a barrel. Any price above that is pure speculation depending on demand.
The crude oil bubble is about to burst again just as it did last year. GS is still talking the price up and will be able justify themselves somehow when it goes back down. But they will do just fine since they make their money either way in the up or down markets using commodities like crude oil to hedge against the weak dollar.
11-12-2009 @ 8:40AM
Ernest said...
The only factors costing gas prices to be so high are GREED and POLITICIANS. All the other stuff is BS. This country been sold to the highest bidder.
Reply