Gas Prices Up: Why And How High?
I don't have to tell you about rising gas prices. Chances are you've been at a gas station recently and the conversation you had with yourself went something like this, "I can't believe the prices keep going up and up and up." Maybe you added a few other choice words – but we want this blog to have a "G" rating.
At a New York City gas station not far from the CBS Broadcast Center, the price of a gallon of regular unleaded is $3.35 – up 36 cents from just a month ago. We learned today the national average price for a gallon is a record $3.10 – a few cents higher than the record levels we saw after Hurricane Katrina.
What's going on? "A lot of it is supply and demand," said oil analyst Andrew Lebow, senior vice president of Man Financial.
Okay, now that Economics 101 class you once took will come in very handy. Despite the record prices, Americans are still guzzling up – going through about 9.35 million barrels a day compared to about 8 million ten years ago.
So demand is higher but supply isn't keeping up. The nation's inventory of gas has dropped 12 weeks in a row and is now near a 20-year low.
"The main factor in my mind is we've had a lot of refinery problems in this country during the months of February, March and April," said Lebow.
Accidents and unexpected repairs at aging refineries are dragging down the nation's supply. Refineries are in what's called "maintenance season," the time when they switch from heating oil to gasoline, according to the experts. But because so many refineries are so old, they are breaking down.
And then there's another problem. Did you know that no refinery has been built in the United States since 1980?
The government's top energy forecaster warned a Senate committee today that until more refineries are built in the United States, consumers will see higher prices at the pump.
"Until that investment is made to the infrastructure to provide some cushion in this industry, the only pressure relief valve when unexpected events occur is price," said Guy Caruso, Administrator for the Energy Information Administration.
The skeptics out there will wonder whether any price gouging is going on – either at the pump or at the refineries. Senators wondered that too, but one oil analyst who testified today said he believed it was very unlikely.
"As a stock analyst, no company that I cover is stupid enough to try to make money by gouging the U.S. consumer," said Paul Sankey of Deutsche Bank. "The simple fact is they don't need to right now. Frankly, they're making so much money just by the nature of the market."
So you might be wondering, "Okay, enough about the reasons why, will the price get even higher this summer? Could I soon see $4.00 a gallon at the pump?"
Here's the good news – chances are the answer is no. Most of the experts think supply will improve in the next few weeks as more refineries are repaired and that could bring prices down. Unless of course, demand keeps going up, outpacing supply. Then it's back to Economics 101 … or time to take the train.