Gasoline prices are continuing their zig-zag path upward — and if anything the predictions for record prices this summer are just beginning to proliferate. Some experts think real prices — adjusted for the impact of inflation — could actually surpass the record set back in the very early 1980s when the turmoil created by the revolution in Iran drove oil prices to a record level.
The number to watch in the next few months is $2.89. If the per-gallon prices reaches that kind of level during the summer driving season, prices will be at their highest level since Jimmy Carter was President.
The National Associational of Convenience Stores (NACS), whose members and affiliates sell about 75 percent of the gasoline across the U.S., is witnessing the rise of prices. The NACS blames limited U.S. refining capacity, strong demand for gasoline and complex seasonal gasoline blend requirements across for driving up wholesale gasoline prices this winter just as they have in previous years.
“Like the character in Groundhog Day, the petroleum markets experience similar conditions over and over — except on a seasonal, rather than daily, basis,” said NACS Director of Motor Fuels John Eichberger. “While the factors contributing to the price volatility change somewhat, springtime supply/demand imbalances have led to price increases of 26-36 cents each of the last four years,” he added.
The NACS scenario actually was somewhat optimistic because it suggested that prices will fall once the bottlenecks caused by refinery repairs and shutdown for new summer blends are resolved.
White House watching
Secretary Spencer Abraham said the Bush administration had an eye on the situation. But he didn’t promise any kind of bold initiatives to try and drive prices down either. In fact, he even rejected a call from some Senators — mostly Democrats — that the U.S. stop filling the national petroleum reserve. Abraham said the DOE purchases have little impact on prices levels.
Nonetheless, Guy Caruso of the U.S. Energy Information Administration, said that it’s quite possible the average gasoline pump prices this summer will set an all-time record by pushing beyond $1.75 per gallon. Prices in several major markets, notably Southern California, are already hovering just near or just above the $2 per gallon level.
Meanwhile, the international outlook for oil production remains uncertain. The oil industry in Iraq is slowly coming to life but the revival of the Iraqi industry appears to depend on a new alliance of convenience with Iran. Meanwhile, new reports from the Persian Gulf suggest oil production in Saudi Arabia has peaked and Venezuela, the other major exporter of oil to the U.S., appears headed for some kind of political crackup.
At the same time, the economic recovery worldwide has increased worldwide demand for oil by 2 to 3 percent.
The Wall Street Journal said last week OPEC had been “caught off guard” by the growth in U.S. gasoline demand and might be inclined to allow more oil on to the market when the organization meets at the end of the March.
Meanwhile, the inventories of crude oil remain low, which also serves to keep prices at a fairly high level during this spring while refiners watch for a break in crude prices.
“I think it is still legitimate to say that inventories are low,” one analyst told United Press International. "Because the prices are so high, there is a great incentive not to fill up inventories. Companies need to supply their customers, but you don't want to buy too much crude because they know the price could go down at any time," she said.
If no break in crude prices materializes, pump prices could even go higher and a new round of predictions for $3 per gallon gas is now percolating.