NEW YORK-Gasoline prices have never been higher this time of the year. At US$3.53 a gallon, prices are already up 25 cents since January 1. And experts say they could reach a record US$4.25 a gallon by late April. "You're going to see a lot more staycations this year," says Michael Lynch, president of Strategic Energy & Economic Research. "When the price gets anywhere near US$4, you really see people react."
Already, W Howard Coudle, a retired machinist from Crestwood, Mo, has seen his monthly gasoline bill rise to US$80 from about US$60 in December. The closest service station is selling regular for US$3.39 per gallon, the highest he's ever seen. "I guess we're going to have to drive less, consolidate all our errands into one trip," Coudle says. "It's just oppressive." The surge in gas prices follows an increase in the price of oil.
Oil around the world is priced differently. Brent crude from the North Sea is a proxy for the foreign oil that's imported by US refineries and turned into gasoline and other fuels. Its price has risen 11 per cent so far this year, to around US$119 a barrel, because of tensions with Iran, a cold snap in Europe and rising demand from developing nations. West Texas Intermediate, used to price oil produced in the US is up four per cent to around US$103 a barrel. That's 19 per cent higher than a year earlier.
Higher gas prices could hurt consumer spending and curtail the recent improvement in the US economy. A 25-cent jump in gasoline prices, if sustained over a year, would cost the economy about US$35 billion. That's only 0.2 per cent of the total US economy, but economists say it's a meaningful amount, especially at a time when growth is only so-so. The economy grew 2.8 per cent in the fourth quarter, a rate considered modest following a recession.
High oil and gas prices now set the stage for even sharper increases at the pump because gas typically rises in March and April. Every spring, refiners suspend operations to switch the type of gasoline they make. Supplies of wintertime gas are sold off before March, when refineries need to start making a new formula of gasoline that's required in the summer. That can mean less supply for service stations, resulting in higher gas prices. And summertime gasoline is more expensive to make.
The government mandates that it contain less butane and other cheap organic compounds because they contribute to the formation of ground-level ozone, a primary constituent in smog. That means more oil, a costlier component, is needed to produce each gallon.
Oil Price Information Service predictions
The Oil Price Information Service predicts that gasoline could peak at US$4.25 a gallon by the end of April. That would top the record of US$4.11 in July 2008. The national average for gasoline began the year at US$3.28 a gallon. The average price for February so far is US$3.49 a gallon. That's up from US$3.17 a gallon last February, a record at the time. Back in 2007, before the recession hit, the average for February was US$2.25 a gallon.
Prices are higher on the East and West Coasts, where gasoline has risen above US$3.70 in Connecticut, New York, Washington DC and California. This isn't unusual-states on the coasts charge some of the nation's highest gas taxes. High gas prices put a strain on many people's budgets.
Americans spent 8.4 per cent of their household income on gasoline last year when gas averaged an all-time high of US$3.51 a gallon. That's double the percentage a decade ago. They could pay even more this year, even though demand is the lowest in 11 years as people drive fewer miles in more efficient cars, says Tom Kloza, chief oil analyst at OPIS.
Miami Herald
