Gas Prices on the Rise this Summer
Wednesday, April 12th, 2006
As you may or may not know, each summer gas prices rise. It’s seasonal, as better weather brings more travel time and manufacturer’s are required to run cleaner blends of gas. This summer, gas prices will likely rise to above $3.00 per gallon again.
The Energy Department’s new seasonal outlook, released Tuesday, projects the price for regular grade gas this summer will average $2.62, some 25 cents higher than last summer, barring any unexpected supply disruptions.
Tom Kloza, director of the Oil Price Information Service (OPIS), told co-anchor Harry Smith: “The next 30 or 40 days are very, very stormy. We’ve got a lot of refining capacity that’s been down since the Gulf Coast storms (last summer). We’ve got a lot of refining capacity that’s down because of annual maintenance.
“Even though prices are going up right now, this is a shoulder season where people don’t use as much, as we’re not using heating oil. A lot of that capacity is going to come back in about 40 days.
“So, I think things will moderate. But the next 30 or 40 days are gonna see a lot higher prices.”
How much higher?
“Nationwide,” said Kloza, “I would say we’re going to go up to between $2.90 and $3 for an average price. Premium will be above $3. That will happen before Memorial Day, and will backtrack a little bit subsequent to that.”
What’s worse, new rules requiring additives such as ethanol will result in local “hot spots,” Kloza predicted. “It’s a race to get the logistics in to install tanks and to be able to handle ethanol. Places such as Washington, D.C., northern Virginia, Dallas, Philadelphia, New Jersey, these are all going to be problem spots in the next 30 days.
“But, when you see the pictures of lines or some stations that are out of product, it’s not going to be necessarily indicative of what you see this summer. It’s gonna be because of the change.”
What’s fueling this year’s price run-up?
“I think the price of crude oil is high because it’s become the darling of the investment community and the speculative community,” Kloza said. “You have tremendous money flow coming into crude as an investment, into crude oil futures. And as long as that happens it’s very difficult for crude oil prices to move lower.
“You know, $70 is about 12 or 13 times the cost of producing it. And more typically in the past it sold for three or four or five times the cost of producing it.”
But one thing that’s not contributing is the driving habits of Americans, Kloza added.
The Energy Information Administration says it expects gasoline consumption to rise as much as 1½ percent over the same time last year.
Kloza begs to differ, saying: “They probably base that on percentage of disposable income, but never underestimate the American public’s ability to sort of scorn or spite the oil companies. I think, as prices get close to $3, people will drive less just because they’re so annoyed.”
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