Summertime shocker: Gas could hit $3 a gallon

Chicago Sun-Times ^ | 1/16/04 | Lucio Guerrero

[Tumbleweed_Connection]

Drivers of SUVs and other gas guzzlers may want to keep their vehicles parked over the summer.

That's because some experts are saying that gas could -- gulp -- hit the $3-a-gallon mark.

"It is not only possible, it is probable," said Fred Rozell, director of gasoline pricing for Oil Price Information Service, which tracks and reports on the oil industry. "In the summer, we consume more gasoline than we produce.

"[This year] we won't have that extra supply to help us."

Winter weather, bolstering demand for heating fuels, already has cut U.S. crude stocks to the lowest level since 1975.

And with simple economics -- in particular the supply and demand rule -- consumers can expect the price of gas to reach record levels. Those prices would especially be possible in Chicago, where government regulations require gas stations to supply more costly reformulated gasoline to reduce smog.

"This could be the year that gasoline prices start to change the way people behave," Rozell said. "They may drive less or look to buy more fuel-efficient vehicles and get rid of their SUVs."

That $3 threshold shouldn't come as a big surprise to pump watchers. Over the last few days, prices at the pump have done more than just trickle upward --they have soared. Prices have surged more than 7 cents a gallon in the last three weeks.

Several factors are being blamed for the uptick, including rising crude oil prices, a weaker U.S. dollar, colder weather that drove up demand for home heating oil, and two U.S. gasoline reformulations, said analyst Trilby Lundberg.

Earlier this week, the all-grades average retail price of gasoline was 8 cents higher than it was at this time last year. The national weighted average price of gasoline, including taxes, at self-serve pumps was about $1.55 for regular, $1.65 for midgrade, and $1.74 for premium.

But those numbers are only expected to rise.

According to the U.S. Energy Information Administration, the forecast for prices to remain stable through the summer banked on crude oil being about $30 a barrel. In the last week, the price of crude oil has flirted in the mid-$30s and could rise further.

Retail analysts say gasoline costs rise about 2.5 cents per gallon for every $1-a-barrel increase in the price of crude oil. And combine that with near record low inventories -- some of the lowest since the long-line days of 1975 -- and drivers may want to learn that CTA map.

But not everyone is ready to buy into the higher prices.

"There is no way that anyone can predict the price of oil next week, let alone next summer," said Geoff Sundstrom, a spokesman for the American Automobile Association. "There is no need to start scaring the consumer with what prices might be."

Sundstrom said the reasons for the short-term increase have been the cold weather and the low inventory, both of which he says will be over in the next few months.

[FITZ]

Mexico has the second highest oil reserves in this hemisphere --- we're making many deals with them --- giving them our jobs, taking in their poverty-stricken classes --- why not demand something in return? For all we're doing for them, they could give us oil and we should have cheap gas prices.

[Dallas59]

"What? Me Worry?"

[Beck_isright]

IF gas tops $3.00 per gallon next summer W will lose the election badly.

[newgeezer]

And I wonder what share of that $3.00 would be taxes? Now it's approximately half or so! Seems to me we'd be payin' about .75 cents/gal. right now if Uncle Sam didn't have "sticky fingers."

Really? From what I can find, it looks like the Federal tax was 18.4 cents per gallon as of 1/1/03. Sure, there's some taxes between the well and the pump. But, 60 cents' worth? I doubt it but, I'm listening.

[newgeezer]

Even for the most destitute -- for whatever reason -- it boils down to a matter of choices. The ones who've already given up smoking, drinking, gambling, etc., and they're faced with whether to cut cable TV or Internet access, ... now I'm moved.

[Gefreiter]

Good point. Milk in my neck of the woods is about $3.40/gallon.

On the one hand, if my Pathfinder ran on milk, I'd be screwed.

On the other hand, if it DID run on milk, maybe it's waste exhaust product would be delicious custard.

Huh.

[Anitius Severinus Boethius]

Didn't we have supply problems in early 2003 that caused us to dip deeper into the reserve tanks? Wasn't that caused by a virtual stoppage of oil being produced in Venezuala?

Chavez has weathered that storm and will likely not make the same mistakes this year. Plus, with Iraq back on track to start pumping crude in the next few months and OPEC's failure to deal with disobedient members, I can't imagine that a one year dip in supply will be so damaging that the larger production numbers by Venezuala, Iraq, and various other OPEC members will be causing a crude shortage by April or May.

[tubebender]

$3.00 gas would bring in another .11 cents a gallon sales tax alone here in Cal. This will make the 'Rats happy...

[RockyMtnMan]

In Colorado the total tax is 40 cents a gallon state and federal.

[palmer]

Yes, and implicit in my 'build more refineries' is the imperative to change whatever is necessary to get new refining capacity online eventually, someday, soonest possible.

Why would oil companies invest in more refineries if they can't get enough reasonably priced oil to fully utilize the ones they have now? Utilization is currently about 90% As the price continues to spike, oil use will decrease along with utilization.

[Axenolith]

This will be a wholly dollar fall created increase. Right now the price per barrel is the equivalent of ~21.00\barrel oil 2-3 years ago. OPEC isn't stupid, if the presses keep firehosing out dollars the price has to rise...

[zook]

Yawn. We hear this every year.

[Axenolith]

Ping to my 51...

[T.Smith]

$3.00 per gallon would just mean more time behind the wheel of the Triumph. That would be too bad, wouldn't it? :^)

[hope]

The Saudis are hoping to get a rat elected in 04...They may be successful...

[hope]

LOL!

There was a rumor in Phoenix last week that the Kinder/Morgan pipeline had a small hole in it...It started gaslines in minutes...It turned out that the rumor was false, but it goes to show how little it takes for a panic.

[discostu]

Wow, it's a bit early for the annual "gas is going to hit $3 a gallon" scare that always turns out wrong. It's especially odd to get the scare this early in an election, media must be bored with the election already.

[gathersnomoss]

And the reserve will have little or no affect on our ongoing price.

[Eric in the Ozarks]

This can be traced directly to the different kinds of gasoline now mandated by the all-knowing Feds.

[gathersnomoss]

..."don't build a wind farm in my front yard."

Do you have some sort of problem with filet-o-bird?