Gas Price Surge In Forecast

Gasoline prices are about to go through the moon roof. One analyst predicts a 24-cent-a-gallon increase in the next few days and other experts say average prices could go as high as $2.50 a gallon this summer, the peak driving season.

In California, CBS News Correspondent Lee Cowan reports, an average gallon of regular gas is well over $2. At one station he visited, Premium had already hit $2.50.
Fuel-watchers say the main culprit is global demand, which briefly pushed the price of a gallon of crude oil as high as $55 a barrel Thursday. That's the highest level since last October.

Denton Cinquegrana of Oil Price Information Service

Petronoia happens when petroleum traders become irrationally afraid there won't be enough oil and gasoline later, so they buy now, bidding up prices.

"This is especially bad news for consumers, given the fact that gasoline prices have risen from early March to the middle of May in 19 of the last 20 years," said energy analyst Peter Beutel of Cameron Hanover Inc.

Even seasoned energy traders have been taken aback by the steep rise in crude-oil prices this week. Typically, the cost of crude is about 50 percent responsible for what you will pay at the pump.

Financial markets are often irrational, and crude oil is no exception. Some experts believe that the spike — crude futures are up $10 a barrel since the start of the year — is partly the result of speculation by hedge funds and others.

Also, the falling dollar is raising the prices of crude oil.

That said, the increasing thirst for gasoline from the world's emerging economies — especially China — is also creating a textbook case of supply and demand. What's more, oil is traded in dollars, and with a sharp plunge in the dollar's value recently, the world's producers are more worried about cash flow than oil flow.

The average pump price nationwide is $1.93 a gallon. It was falling as recently as late February, the latest Lundberg Survey, but Trilby Lundberg doesn't expect the trend to continue much longer.

"The chances of gasoline rises are very, very strong, if not immediately, then in coming weeks, as we move into spring," she told CBS Radio News.

A government thinks the analysts are overreacting. Michael Burdette of the U.S. Energy Information Administration says it takes about eight weeks for crude prices to make it to the pumps. He doesn't think the increase will be more than 10 cents a gallon.

But even if gasoline does hit $2.50 a gallon, the American Automobile Association doesn't think it will change Americans' driving habits.

"It will probably have little or no effect on people's vacation plans," said AAA's Robert Sinclair. "We did a survey a couple of years that showed ... that gasoline would have to hit $3 a gallon or above for [SUV owners] to consider changing their vehicles."

And some analysts say they'd better get used to it. Sinclair told CBS' Cowan that the $55 price tag on a barrel might be here to stay.

"Probably the era of cheap oil, as we've known it, where a barrel of crude oil was $29 or $30 dollars in gone for ever," Sinclair said.