Gas prices highest ever for this time of year, with predictions running as high as $6
NEW YORK -- Gasoline prices have never been higher this time of the year, reported the Associated Press. At $3.53 a gallon, prices are already up 25 cents since January 1.
The Oil Price Information Service predicts that gasoline could peak at $4.25 a gallon by the end of April. That would top the record of $4.11 in July 2008.
The national average for gasoline began the year at $3.28 a gallon. The average price for February so far is $3.49 a gallon. That's up from $3.17 a gallon last February, a record at the time. Back in 2007, before the recession hit, the average for February was $2.25 a gallon.
Prices are higher on the East and West Coasts, where gasoline has risen above $3.70 in Connecticut, New York, Washington, D.C., and California.
High gasoline prices put a strain on many people's budgets, said the report. Higher gasoline prices could hurt consumer spending and curtail the recent improvement in the U.S. economy, said the report.
A 25-cent jump in gasoline prices, if sustained over a year, would cost the economy about $35 billion.
Americans spent 8.4% of their household income on gasoline last year when gas averaged an all-time high of $3.51 a gallon. That's double the percentage a decade ago. They could pay even more this year, even though demand is the lowest in 11 years as people drive fewer miles in more efficient cars, Tom Kloza, chief oil analyst at OPIS, told AP.
"You're going to see a lot more staycations this year," Michael Lynch, president of Strategic Energy & Economic Research, told the news agency. "When the price gets anywhere near $4, you really see people react."
Gasoline prices are already an issue in the presidential campaign, and could affect President Obama's re-election chances. Republican candidate Newt Gingrich spoke several times this week about opening up more federal land to oil and gas drilling as a path toward U.S. energy independence--and lower pump prices.
"Our goals should be to get gasoline to $2.50 or less so that working families can actually get to work and retired families can travel," Gingrich said at a campaign event in Los Angeles Thursday.
Last year was the highest priced year ever for gasoline and national averages for a gallon of regular are about $3.50 now. Consensus is that the current situation will result in prices over $4 by spring and any of the other possibilities, especially military action in the Middle East, could easily push gasoline prices to $6, said a Forbes report. Some people believe that rising gasoline prices are a sign that the economy is strengthening but one sure way to knock the economy back into recession is a $6 or even $4 per gallon gasoline price.
High oil and gasoline prices now set the stage for even sharper increases at the pump because gasoline typically rises in March and April.
Every spring, refiners suspend operations to switch the type of gasoline they make. Supplies of wintertime gasoline are sold off before March, when refineries need to start making a new formula of gasoline that's required in the summer.
That can mean less supply for gas stations, resulting in higher gasoline prices. And summertime gasoline is more expensive to make. The government mandates that it contain less butane and other cheap organic compounds because they contribute to the formation of ground-level ozone, a primary constituent in smog. That means more oil, a costlier component, is needed to produce each gallon.
Paul Dales, a senior economist at Capital Economics told AP that it would take a bigger shift in the global economy--a deep recession in Europe or a slowdown in Asia's manufacturing--for pump prices to drop noticeably. Either event would slow oil demand, depressing prices.
But experts expect demand to keep rising. World oil demand is expected to increase by another 1.5% to 89.25 million barrels a day in 2012, according to the Energy Information Administration (EIA).
In the short term, tensions with Iran are feeding fears that oil supplies could be blocked.
The United States and Europe are tightening economic sanctions against Iran over what the West believes is Iran's attempt to build a nuclear bomb. World leaders fear Israel may be planning a strike against Iran, the world's third largest oil exporter. In response, Iran has threatened to withhold its own oil deliveries and to block the Strait of Hormuz, a waterway along its coastline through which one-fifth of the world's oil flows.
On Friday, an international banking clearinghouse crucial to Iran's oil sales said it is prepared to discontinue services to Iranian financial institutions being targeted by the EU and U.S. sanctions. That could ratchet up the pressure on Iran, but also send oil prices soaring.