- Feb 10, 2011
Gas Prices Are Going Up Again
Analysts Predict $3.50 Per Gallon By Late Summer
It's hard to imagine a better example of these truisms than gasoline prices. As we know, they are volatile, and many factors contribute to their rise and fall, most of them having to do with global economics, but some of them also involving geo-political forces.
Egypt's present political and economic instability is certainly a factor on everyone's radar. Egypt is not a big oil exporter, but if the political turmoil continues and results in a crippling of the nation's infrastructure, it could have an impact on prices. Tankers carrying oil from the largest Middle Eastern oil-producing nations travel through the Suez Canel, and an oil pipeline runs alongside it.
"Speculators are worried about the downside of the events in Egypt," says Tom Kloza, chief oil analyst for the Oil Price Information Service.
As of February 9, the average national price for a gallon of regular-grade gas had gone up by 47 cents in the last 12 months, from $2.64 to $3.11, according to AAA. Analysts and other experts expect prices to be even higher come summer. Some say they'll be up to the $3.50 range from June through September, and the Energy Information Administration announced in January that there was a 10 percent chance that the average price will hit $4 per gallon by the end of the summer.
For those who appreciate symbolism, it's also worth noting that during the Detroit auto show in early January, the New York Times' Nick Bunkley reported that the average U.S. gas price that week was $3.089 per gallon -- its highest price ever during the Detroit show, he noted on Twitter.
"The main factor for the increase in the price of crude over the last year is that there has been a stronger demand for oil and gas in emerging economies like China and India," says Brian Milne, the Refined Fuels Editor and Product Manager for Telvent DTN, a provider of real-time commodity information services. "There has been a much greater demand in those nations for oil. The economies in those nations have continued to grow even as the rest of the world was in recession for a couple of years."
Domestic demand has also increased, as the U.S. economy has continued to recover. Demand will continue to increase as the economy further recovers. "The U.S. demand really does take a back seat to the demand in China and India. We've seen flat demand for gasoline here (due to the recession), but we're now competing with those nations, and the rest of the world, for crude," says Kloza.
Milne projects that prices will likely fall in February, because demand is generally down this time of year, due to people driving less in states with winter weather. But he sees prices heading back up in March, hovering in the $3.20-to-$3.30-per-gallon range through May, and then hitting $3.40 to $3.50 by late summer. "But prices will be higher along the West Coast during the summer. The Energy Information Administration expects West Coast retail prices to be 25 cents higher than the national average during the summer," adds Milne.
Kloza's projections are in the same ballpark. From mid-March until mid-May, we'll see the usual fears about gasoline production, he notes. At some point in what Kloza calls this "petro-noia cycle," during which time winter gasoline formulations get replaced with summer-specific gas, he says, "We're likely to see prices nationally in the $3.25-to-$3.75-per-gallon range."