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Though it's almost summer and oil is spilling unchecked... Though it's almost summer and oil is spilling unchecked into the Gulf of Mexico, gas prices are down. (jeferonix, Flickr)

A wise man once said that the hardest thing in the world to predict was the future. To which we would add: “Especially gasoline prices.”

Fuel prices have indeed been a moving target over the last couple of years. Now, summer is upon us, a season when gas price increases are as commonplace as beery backyard barbecues and melting ice cream cones. Many economists have been saying for months that as the economy began to recover, oil prices would increase, which would lead to a hike in the price of petrol in turn. Certain indicators in the last couple months suggest that the economy has indeed been recovering, slowly.

Which brings us back to the folly of trying to predict the future price of gas. The conventional wisdom about a summer price hike was dramatically upset when the national average price per gallon dropped 16 cents from May 5 through May 26, from $2.93 to $2.77, according to AAA.

Happily for motorists, this summer should be an atypical one when it comes time to fill up the tank, according to industry analysts. Indeed, barring any major upheaval – like a hurricane, or a war breaking out in a leading oil-producing nation, etc. – the average summer price will probably fluctuate between $2.60 and $2.80, according to those that make these sorts of predictions for a living. The key word, of course, is “probably.”

“Now, if we wake up tomorrow and some military operation has erupted in North Korea, or if Iran is pot-boiling again, that would certainly change the calculus,” says Tom Kloza, chief oil analyst for Oil Price Information Service, based in New Jersey.

John Felmy, chief economist for the American Petroleum Institute, concurs: “If there were to be a disruption on supplies due to unrest in certain countries, or, say, if the demand for fuel in China were to increase significantly, which mopped up a lot of the existing supplies, then that would cause prices to go back up.”

As for the disastrous BP oil-well explosion -- and its otherwise unstoppable gusher of oil into the Gulf – that will not have an impact on gas prices any time soon, says Felmy. The well was mostly for experimental purposes and didn't have an impact on our daily consumption.
 
From an environmental-impact perspective, the staggering amount of oil gushing from that well is indeed a catastrophe of epic proportions, “but it only represents a small percentage of all of the oil that is being pumped right now,” said Felmy.
 
“And, remember, that oil wasn’t slated to be produced yet," said Felmy. "They were going to cap that well and then decide how and when to produce, refine and distribute that oil. So, in that respect, it won’t have any impact on the supply of oil or price of gasoline, not in any short-term scenario.”

Kloza summarizes his summer gas-price forecast by offering up this slightly sardonic analogy: “You know, the New York Mets could win the World Series this year. And, the price of gas could increase to more than $3 a gallon this summer. But the likelihood of either happening is about the same.”

So, what precipitated the recent price drop and upset the notion that price hikes are always to be expected come in summertime, when the weather is hot, and we’ve got cruisin’ on our minds? Kloza says that recent assumptions regarding fuel prices, as related to an economic recovery, were based on the economic ups and downs of the last two years. Since this was a period so fraught with financial turmoil, he thinks this was done in error and instead the last two years should have been regarded as outliers.

“In ’08, the world lost its mind on just about everything, from the price of real estate to the price of grain to the price of oil,” he says. “We got disconnected from reality, which is why the price of gas spiked to more $4 a gallon that summer, and then dropped 75 percent by the end of the year.”

And in 2009, the nation struggled to try and recover from a “super recession,” something the U.S. has never had to cope with during the modern era. “So, the markets just didn’t know how to behave when coming back from that abyss,” offers Kloza.

Another factor, according to many analysts, is that supplies of gasoline have risen steadily in the two months prior to the price drop. In fact, as of April 30, the U.S. had squirreled away 225 million barrels of gasoline, a supply increase of about five percent over April 2009. Concurrent with that, demand had decreased, relative to previous estimates.

“That, in turn, was partly due to the record amount of gasoline produced thus far in 2010,” says Felmy. “In March, we set an all-time record for gasoline production: 9.3 million barrels per day. And April was not far behind, with 9.1 million barrels per day,” he says.

Thirdly, Europe’s escalating debt crisis cast some serious doubt about whether the global economic recovery was real, or at least whether the recovery would proceed at the rate that forecasters had assumed. That doubt prompted institutional investors to seek refuge in the U.S. dollar, relative to European currencies. When the value of the dollar increases, it almost always follows that oil prices drop.

One key point to consider, though: The above prices are national averages. Consumers are paying more in certain states, like California, New York, Nevada, Illinois and Hawaii. That’s due to one of two factors, says Felmy, either higher taxes or because the state is a long distance from the “hub” of the nation’s oil-refining industry along the Gulf Coast.

The cost of hauling fuel across the country can add many, many pennies to the retail price of fuel. “Hawaii, obviously, is a long way away, as is Alaska. And Alaska is also massive, which further adds to the transport costs. So the distribution costs to those states can really add up,” says Felmy.

Taxes vary significantly across states. “Chicago, for example, has the highest in the country. There’s the gasoline tax, and state excise tax, and then federal tax on top of it,” says Felmy.

Kozla shares a thesis that oil-industry analysts and traders frequently chew over: That some time this decade, or even in the next five years, we could be paying those summer 2008 prices again.

“But I keep saying: ‘Not yet – and not this year,’” he says.



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  • 99 Comments
      mac2jr
      • 6 Months Ago
      What we really need is $15.00 per gallon gasoline; and it is coming in the near future, the next ten to fifteen years. The supply of crude is dropping and the cost of getting the remaining crude is getting very expensive, and coupled with the closing and not adding of refineries and fuel distribution will help in driving the cost up. Now add Global warming that will be melting the ice tundra and causing the northern pipelines to fail, and add more hurricanes that close down drilling and production. To all this one has to know that the USA's backing of some foreign nations are ticking off most of the oil producing countries, and the pollution of land, water, seas, beaches, etc,. are causing all sorts of kickback that will require more regulations and cost. But, the main reason is that we NEED alternative energy, and the only way it seems we can obtain it is to FORCE Private Industry into producing it, and that force seens to be by raising the price of a gallon of crude oil or gasoline to untold of heights. Remember folks, in 1960 the cost of a gallon of gasoline was $0.17.
      cmcclarty
      • 6 Months Ago
      Hey Obama said we should be paying $700 a gallon when he was on the trail. How many of you libs are ready to jump on that band wagon! Sure lets all have batterys in cars then watch your bill go up theres no free lunch. Washington will make you pay one way or another! With electric cars welcome to future brown out!
      • 6 Months Ago
      If a million gallons of oil, a day, are leaking out of this one well, why are we short in the first place? The Alaska pipeline was supposed to relieve us of foreign oil, why hasn't it? The oil field, the pipeline comes from, has enough oil to supply us for a lifetime, anyway. The newest discovery in Alaska is even larger. So isn't it obvious the oil companies control, pretty much the whole world and do as they please? I don't understand how everyone complains about oil companies and expects it to do any good, DUH! The so called government, owned by the oil companies, hauls them into congress for a Q&A session and chews them out strictly for show and then later, a party paid for by the oil companies, more so called campaign contributions are dished out. The press goes right along cause they are invited to the parties and get paid and even get to ride in AF-1 on trips all over the world. Oh, by the way, all the trips taken by air, all over the world, by congress and executive office, uses how much of the precious oil? We are the most powerful nation in the world so why do we have to go see anyone, they should come to us. We sure do give them enough of our taxpayer money, then they spit on us. We built all the foreign oil fields and made them rich and they spit on us. The oil companies are supposed to pay for the oil spill, they will, in campaign contributions, more trips around the world for government officials, state and federal. As for prices, do they raise them everytime something happens, not really, they raise them anytime they want, 5 cents, then 2 more cents after that, then drop it a penny or two and everyone goes nuts. HA! Then it goes down a dollar from three, whoopee. When the price at a service station goes up and no tanker has been there for 2 days or more? Come on, it still should be 50 cents or less, a gallon, suckers! But what do I know, I am not the all knowing, bought and paid for press, nor am I in the bought and paid for government, which makes them way smarter than anyone. AND, the government charges bunches of taxes on fuel, to fix roads that don't get fixed? More oil companiy contributions to government? Higher prices, means more tax money collected! Now I will be labeled a crazy person because I said this, but, hide and watch, holler and scream, see if anything changes. Get a grip people, it ain't gonna change. We have never needed foreign oil and never will. You people believe everything they tell you so take what they give you and shut up! Or, get rid of all of them and the current ones that want in, put the common, honest(if possible), working man back in charge. I do not mean the working man that goes so far in debt, just to maintain an image, he's one of them. Good luck with that because the greed and corruption is way too deep to stop it now.
      • 6 Months Ago
      The gas prices may be dropping in other area's, but in Brooklyn, NY they still average 2.93 to over 3.00 per gallon. Upstate New York, they average 2.68 to 2.83 per gallon. The stations are still gauging down here in Brooklyn.
      rick
      • 6 Months Ago
      Gas prices will go up on the smallest of excuses. The Gulf Oil spill is not a working well, it was being drilled. So this can not be an excuse. So if speculators are not to blame, I think they play a large part, then it greed and Obama has millions from campaign funds betting onit.
      ultraclen2
      • 6 Months Ago
      where's the outrage over these inflated gas prices and our inactive pres. people?
      JAYSTARR
      • 6 Months Ago
      This is Outrageous...Why should, We pay for their mistakes. The Oil company spills the oil, and We have to pay at the pump for the lost. This type of system should be stopped, and the prices should go down...
      • 6 Months Ago
      Gas here in Grand Saline, Texas only $2.34 a gallon! Be HAPPY!!!
      • 6 Months Ago
      We all need 2 save the future of the earth and cut way down on the use of gas and oil's. Don't drive one day a week and see the difference. If we don't act now our future will be in danger of surviving, and that's no joke. So if we all could do our part we CAN make a difference!!!!
      marktateusa
      • 6 Months Ago
      mac2jr - What idiot would think that forcing the private industry to do anything is good? The only way to develop a true alternative energy is to make something that is cheaper and easier to get. That will cause people to seek it. Forcing private industry to do something is what caused failure in all the attempts at socialism and communisim.
      Levet Brown Jr
      • 6 Months Ago
      It's quite clear. Gas prices are not dropping because this oil well is a research project. It would be nice to know this. Why isn't the Obama administration informing the people? Why haven't the Republicans or talk show host ran with this information. We know why the lame media doesn't. To say that this oil well was an experiment that has failed. Sort of takes away from keeping a boot on BP's throat. Plus, opens the dialog of "why not drill where it's safe? Even sadder is BP's response. Why don't they defend themselves? Why not, because under the Obama administration oil is evil and must be banned. Levet Forestville, Maryland
      Gene Leahy
      • 6 Months Ago
      It's called ZONE PRICING! and I have proven it. It is also a violation of Sherman ANTI TRUST ACT I have 40 experience in petroleum pricing and marketing nation wide
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