Gasoline demand in 2009 has been comparatively low from taking 7.6 million Americans out of the workforce through layoffs, yet gasoline's price has gone up, not down. It has risen about 20 cents per gallon in the past month to a U.S. average price of $2.65 per gallon for unleaded [image-nocss] regular, said the report, citing data compiled by gasbuddy.com. This is at a time when the nation is heading into December and the winter season, when gasoline demand historically has been at its lowest.
Part of the reason why gasoline demand is down, but the price is up is the price of oil, currently around $80 per barrel. Oilboosted by the weak dollar and by likely increasing global oil demand during the economic recoveryhas essentially doubled since hitting a post-leverage boom low of about $35 per barrel a year ago.
The other part concerns the business of refining and the nation's refinery system, the report said. With oil prices high and gasoline demand low, the "crack spread"the difference between what refiners pay for oil and the total revenue received for products created from a barrel of crudehas been low. That has prompted many refineries to reduce capacity.
According to U.S. Energy Information Agency (EIA) data, refinery capacity utilization was at 80.6% for the week ending October 30, compared to 81.8% for the week ending October 23. Even allowing for normal seasonal maintenance, that decreases refining output. Capacity utilization, in normal times, would be closer to 90%. That reduced refining activity also has helped boost gasoline's price, said the report.
But the real problem concerns the gasoline market's condition when demand ramps up for seasonal (summer driving) and cyclical (at some point, the U.S. economy will start creating jobs) reasons, DailyFinance said. Assuming oil prices remain at a high level ($70 to $80 per gallon), rising gasoline demand will cause prices at the pump to jump about 40 cents to 50 cents per gallon, it said.
The spike could be larger in high-cost metropolitan areas like New York, Boston, Los Angeles and San Francisco. A $3.25 national average for unleaded regular would occur in short order.
And there are more-sobering scenarios. Patrick Kerr, managing director of Amerifutures, a commodity and options broker, told DailyFinance that $3.25 per gallon could prove to be a low price in the quarters ahead, if the factors he argues are boosting gasoline prices remain in place.
Kerr said six factors are likely to continue to put upward pressure on U.S. gasoline prices"
More weakness in the dollar. Increasing oil demand in China. No readily available vehicle fuel substitute for U.S. gasoline. Geopolitical tension. Inelastic U.S. gasoline demand (people can reduce gasoline consumption only so much). Lack of new, more efficient U.S. refineries. "A $4-per-gallon price is possible by the end of this year, but I think we'll definitely see $4 per gallon in 2010," Kerr said.
The United States is heavily dependent on gasoline. Although alternate fuels are gaining market share, gasoline will continue to make up the bulk of the U.S. residential transportation budget, the report said. That points to the need to increase vehicle efficiency. Absent increased efficiency and conservation (reduced driving), consumers' disposable income will be reduced even more, which will act as a drag on U.S. gross domestic product growth.
DailyFinance's bottom line: "Any national economic policy that assumesor counts onlow gasoline prices long-term is inherently flawed."
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