Gas Prices: Is It Really the Economy?

I had to stifle a shout when I pulled up to the gas pump, yesterday morning, though the soccer mom in the minivan next to me actually shook her head in agreement with the words I mumbled. Almost overnight, prices have surged about 20 cents, here in Michigan, and the premium gulped down by the Land Rover LR2 I’m testing rang up at $3.29 a gallon.

Wasn’t it just a couple months ago that gasoline dropped down below $2 in many parts of the country? Yet, now we’re hearing some analysts project prices of as much as $4 before the summer ends. What’s happening here?

Let me stress that I am not a conspiracy theorist. I don’t spend time wondering who was really shooting at John Kennedy from that grassy knoll. I don’t take Oliver Stone too seriously. But I have a hard time believing there really isn’t some sort of collusion on the part of the oil industry. If you watch the pattern of the last few years, it’s unmistakable: gas prices rise to the limits of elasticity, then slump back, then, after consumers catch their collective breath, the numbers rise again, pushing a little bit higher before again slipping back.

For several years, that pattern has repeated over and over, each time nudging the top-line price a bit higher. American motorists freaked when the figures topped $2 a gallon, but the next round, $2 seemed cheap. And this time, last year’s $2.85 seems like a veritable bargain. Keep it up and we may soon accept $4-a-gallon gasoline as our norm.

There are some folks who like that idea, and not just ExxonMobil, the company that has, on average, invested less than any of its competitors in developing alternate fuel resources. There are plenty of regulators, lawmakers and environmentalists who think that despite the impact on the consumer’s pocketbook, high fuel prices are ultimately a good thing. In the long run, they argue, motorists will trim back their driving and switch to smaller, more fuel-efficient vehicles.

Perhaps they’re right, but I have a hard time accepting what’s happening at the pump. The irony is that despite all the dire warnings about our reaching the peak of oil production, the world is awash in petroleum. Yes, concerns about Mideast instability play into the hands of commodity traders. But there’s also the issue of refinery capacity. Whether you blame strict environmental regulations or greedy oil barons, U.S. production capacity is stretched thin, as we saw in the wake of Hurricane Katrina. That only makes it easier for the petro-giants to charge what they think they can get away with. I don’t need Oliver Stone to make me feel angry about that.

A lot of Americans agree, by the way. Notes a press release that crossed my digital transom, earlier today:

“Most Americans think they are being gouged at the gas pump and say that will cut back on their summer travel plans and general spending if fuel prices continue to climb to $3.50 a gallon or even higher, according to a major new Opinion Research Corporation (ORC) survey conducted for the nonprofit Civil Society Institute (CSI) think tank and its 40MPG.org project.”

The full report will be released on Wednesday, though you can get some advance information at http://www.40MPG.org and www.CivilSocietyInstitute.org.

AP: $4 Gas Is Nearly Here—Associated Press