Gas Prices Surge to $4

Is the $5 gallon on the horizon?

by on Mar.07, 2011

A gas station in Santa Monica, CA.

Motorists in several parts of the country, notably including Southern California, have seen fuel prices surge past the $4 mark, with many industry observers predicting the country could soon see costs surge past the record figures set during the mid-2008 fuel scare.

With the situation only getting worse in Libya, one of the world’s largest sources of petroleum, analysts are now speculating not just if, but when pump prices in the U.S. could tip the $5 mark.  Economists are also worrying what the rapid rise might mean to an American economy that still seems fragile after one of the worst recessions in more than half a century.

In the Know!

As of Friday, the Lundberg Survey found that U.S. fuel prices had risen 32.7 cents over the previous two weeks, to an average of $3.51 a gallon for self-serve regular.  That’s the biggest jump the American market has experienced since a 38-cent run-up between August and September 2005, according to the Lundberg Survey, which follows fuel prices in the continental U.S.  That prior record was the result of the damage done to Gulf Coast refineries by Hurricane Katrina.

“This time around, the damage comes not from nature but from people,” said Trilby Lundberg, referring to the Libyan crisis and the broader uncertainty about Mideast oil supplies as the democracy battle rages across northern Africa.

The average price for mid-grade gasoline is $3.64, according to the survey, and $3.75 for premium.  Diesel, meanwhile, has jumped 29 cents, to $3.88 a gallon.

Among the cities surveyed, Billings, Montana had the lowest price for regular, at $3.15.  The lowest figure found in California, however, was $3.70 a gallon.  And initial reports suggested that fuel prices surged again over the weekend.

There have been plenty of forecasts that gas would top $4 across the country by Memorial Day, though that could happen sooner, analysts warn.  And what once seemed the unlikely forecast of $5 a gallon by 2012, from former Shell President John Hofmeister, is now appearing more and more a real possibility.

It has been only weeks since benchmark crude oil prices tipped $100 a barrel but as of Monday morning, Ice Brent crude had risen another $1.13 to $117.10 a barrel, with analysts predicting the upward trend was only likely to continue – at least as long as the stalemate continues between pro-Qadaffi forces and the Libyan rebels who now control much of the country’s oil production and shipping sites.

That country has the largest known oil reserves in Africa and though it supplies only 3% of U.S. petroleum, Libya is a major source for Europe, especially Italy.  As shipments dry up, users are forced to find alternative sources which only drives up prices charged by all suppliers.

In the past, the shortfall might have been offset by the fact that the U.S. market still hasn’t fully recovered from the recession, but demand for energy is now being driven by the booming Chinese and Indian economies.

The danger is that the rise in fuel prices could tamp off the nascent American recovery, cautioned Lundberg.  “Higher prices today are certainly capable of (bringing) bad news in the economy,” she said.

Chris Lafakis, the energy and financial markets economist at Moody’s Analytics, warned CNBC, this morning that the impact on consumers’ pocketbooks will be significant: an added $46.3 billion in gasoline costs over the next year if the current price of petroleum holds.

The pain will be felt at more places than just the pump.  Moody’s predicts that those who use oil for home heating will watch their bills rise a collective $18.4 billion.  And airlines, like Delta, are already bumping up prices by $10 or more per flight to cover their additional fuel costs.

Yet Lafakis said he is not as worried as such forecasts might suggest.  He sees the ongoing run-up in petroleum prices as “unsustainable (at) this magnitude.”

For one thing, analysts note that Saudi Arabia has more than enough capacity to make up for the Libyan shortfall.  But even that nation, a staunch ally of the U.S., is experiencing some political turmoil.  And unrest traditionally translates into petroleum price spikes.  How much longer the current run-up continues – and how high prices will go – remains to be seen.

Tags: , , , , , , , , , , , ,

8 Responses to “Gas Prices Surge to $4”

  1. danbedore says:

    Fascinating times we are living in. The difference this time around is that the auto industry is better prepared to deal with high gas prices.

    40 mpg is the new black.

    Dan Bedore
    Hyundai Motor America

    • Paul A. Eisenstein says:

      Funny, isn’t it, Dan, that so many new products are getting to 40 — and without full hybridization.
      I recall a comment, made some years back by Dave Cole, of the Center for Automotive Research. He emphasized that technologies often go through their most significant improvements at the point when they are being challenged by new paradigms — ie electric or hydrogen propulsion. That is so much the case with the internal combustion engine: stop/start, DI, turbocharging, Twin Air, and ancillary improvements like 8-speed gearboxes, all are yielding efficiencies we might have been unwilling to believe a decade ago. But can we push much further? Can we see your 40 mpg out of a midsize, rather than compact, model without hybridization? That car, if it was more than a stone pony, would be the real breakthrough winner.
      Paul A. Eisenstein

  2. jlowe51 says:

    Yep, time to buy a Chevy Volt. The money you’ll save in gas will help pay for thye car.

  3. LeeMisko says:

    I wish some agency, network or news organization would quit publishing information on the “likely” further gasoline price increases which are put out mainly by people who have an interest in obtaining those higher prices. They do it to facilitate a “softening” of public which begins to accept them as inevitable, without outcry or serious objection.
    Should someone be asking “why,really why?” given the reserves,etc.
    Lee Miskowski

    • Paul A. Eisenstein says:

      Hi, Lee,
      I must admit I’m reluctant to give up publishing such stories but I do find it interesting that this time ’round there has been virtually no real public outcry as gas nudges back up to $4.
      Paul A. Eisenstein

  4. GenJones says:

    It’s amusing to me to drive a mid-size 40 mpg non-hybrid now with 192,000 miles on it. My 2005 Mercedes E320CDI is running strong, has the midrange power of a V8 and can get over 40 mpg on the highway. Really, the cars that say they get 40 mpg are just for highway on the EPA cycle which is optimistic for gasoline powered cars, pessimistic for diesels. Diesels have low and mid-range torque which is much more of what is used in every day driving in the US than peaky horsepower, although as is said here, technology has come a long way and is continuing to improve.

    • Paul A. Eisenstein says:

      Hi, Peter,
      I’m also a diesel fan and constantly amazed how far the technology has come in recent years. It’s too bad more makers aren’t willing to give a push to the technology. As you suggest, for many Americans, the torquey nature of the diesel – especially modern turbodiesels — is perfect for what they expect and need.
      Paul A. Eisenstein