Gas Prices Shouldn't Be High, But Are. Here's Why

Gas Prices Shouldn't Be High, But Are. Here's Why
Joe Raedle/Getty Images
By Javier E. David | @TeflonGeek

Rumors about the demise of U.S. gasoline demand have been greatly exaggerated.

Until late 2013, most energy observers forecast the world's most reliably gas-guzzling market to consume less fuel this year. What was once thought to be a structural decline in demand, however, has proven more durable than expected.

As the summer driving season nears, retail gas remains stubbornly lodged near $4 a gallon. According to the Energy Information Administration, gas prices rose for 12 straight weeks through late April, and were 20 cents a gallon higher than the same point last year.

So what gives?

"The world's not swimming in crude or gasoline yet," said Francisco Blanch, commodities strategist at Bank of America-Merrill Lynch, in an interview. "Despite all the crude and gasoline production in the U.S., international markets are not tagging along."

International developments matter, analysts say, because gas prices are linked to internationally priced Brent crude. Turmoil in Ukraine and spotty supply from the perennially unstable Middle East has conspired to keep oil above $100 a barrel.

In a research note this week, analysts at Goldman Sachs (GS) called crude oil fundamentals "stable but tight," adding that most developed-economy stockpiles "remain at low levels" amid lower-than-expected output from hotspots like Libya and Iraq.

That backdrop explains why prices at the pump have defied the gravitational pull of a litany of mitigating factors such as a more fuel-efficient U.S. car fleet, rising domestic production and a still-fragile recovery that should blunt demand.

Bank of America-Merrill (BAC) points out that domestic oil and gas production has driven gasoline imports to near zero, while the U.S. is churning out nearly 10 million barrels a day. Despite all this, there has been little relief at the pump due largely to factors outside America's control.

The International Energy Agency said in its most recent report that OPEC will need to increase its own production this year to sate rising demand. Meanwhile, the energy watchdog said non-OPEC production is also falling short of expectations.

'Shale boom may not be helping'

"In the U.S. and Canada, yes, there is a big shale revolution going on ... but the rest of the world is not producing enough to feed itself," said Bank of America's Blanch. "That's why oil prices abroad are elevated and why gasoline, which is pegged to oil prices, are so high."

The EIA expects crude oil prices to fall this year, which should keep a lid on gas prices. Still, the agency expects average gas prices to rise by 3 cents during the June -- August period compared with the same quarter last year.

The latter may come as another blow to consumers, many of whom are hard pressed to see material benefits in the U.S. shale surge when retail energy costs are still so high.

"For now, the shale boom may not be helping consumers directly by pushing [gas] prices lower," said Blanch. Still, the oil and gas renaissance can alleviate energy inflation while creating economic benefits, like more jobs, he added.

Increase your money and finance knowledge from home

Advice for Recent College Grads

Prepare yourself for the "real world".

View Course »

Introduction to Retirement Funds

Target date funds help you maintain a long term portfolio.

View Course »

Add a Comment

*0 / 3000 Character Maximum


Filter by:

Blame record low interest rates which triggers investors to take risk in the futures and commodoties markets, raise interest rates and energy and other futures prices will fall off the cliff causing the price at the pump and other commodoties to fall. Thank our federal reserve and gov't for this one, apparently they think high gas prices with low interest rates is economic stimulus, well not to the consumer it isnt, the consumer needs confidence to spend and it doesnt come just because borrowing costs are low when everything else is going through the roof in prices.

May 19 2014 at 12:46 PM Report abuse +1 rate up rate down Reply


May 18 2014 at 8:38 PM Report abuse -2 rate up rate down Reply


May 18 2014 at 8:37 PM Report abuse -2 rate up rate down Reply

The only way to bring big oil on there knees is to boycott.boycott one gas company for one week,then next week boycott another.they cannot survive a loss of sales for one week,but we American are too weak to unite like this.

May 18 2014 at 8:30 AM Report abuse +1 rate up rate down Reply
1 reply to bjadebe's comment

Supply and demand has little to do with the prices on gas, its interest rates at record low levels causing such high prices at the pump if demand falls OPEC which controls supply with demand for energy prices will just adjust output with demand, but until interest rates increase and the U.S. dollar increases against other currencies oil/gas prices will stay where there at as it has less risk to the investor to trade and take risk when placing bids on oil/futures because of how its traded on the markets.

May 19 2014 at 12:52 PM Report abuse +1 rate up rate down Reply


May 18 2014 at 6:21 AM Report abuse +1 rate up rate down Reply
1 reply to a1623yankee's comment


May 18 2014 at 6:21 AM Report abuse +1 rate up rate down Reply
peggy oswitt

Obama likes high gas prices. The gas tax, you idiots. The higher the price, the more taxes he collects to pay the welfare of the Muslim ***********, blacks , and impoverished Hispanics. He even gives away free gas in poor cities, mostly to blacks. What about us, the minority whites????

In six years, where is all his alternative energy sources, that he spent billions of our taxpayer dollars on. Down the crapper!

Thanks Big "O"!! You really suck!!!

Gerry Oswitt
Malta NY
Ex ExxonMobil employee

May 17 2014 at 10:02 AM Report abuse -3 rate up rate down Reply

Here's the riddle for the day

When will the world run out of oil?

May 17 2014 at 9:31 AM Report abuse -1 rate up rate down Reply
1 reply to tru.liberal1's comment

And a hint

If you're thinking the answer depends on reams of data, or a complex calculation, you're off-base. An economics 101 textbook offers the simple answer.

May 17 2014 at 9:32 AM Report abuse rate up rate down Reply

Truth be told, we pay more for cars that get better mileage.
I told anyone that would listen...
The less we use the more they charge.
So we pay more to save, and then pay more for less fuel.
It is a scam. They profit more from less fuel used and we pay for the privilage to use less to help big oil make more.

May 17 2014 at 4:13 AM Report abuse +1 rate up rate down Reply
1 reply to dilbert216's comment

You kow it.. Perfectly stated.

May 20 2014 at 9:08 AM Report abuse rate up rate down Reply

go ev plug in your car gas stinks

May 17 2014 at 3:14 AM Report abuse +1 rate up rate down Reply

Deregulation was the beginning of the end to affordable fuel.

May 17 2014 at 2:40 AM Report abuse +1 rate up rate down Reply