How High Will Gas Prices Go?

By Beacon Staff

Drivers beware: Gas prices may be heading up this summer, thanks largely to signs that the economy is strengthening.

That would follow a typical pattern in which gasoline prices often peak during the season of maximum demand. The big question, of course, is how high prices will go. Energy prices are notoriously volatile and hard to predict. For now, many forecasters see a moderate rise – not the major spike that walloped American consumers in 2008.

Here’s more on the outlook and what it might mean for you:

Where are prices at the pump headed?

The US average retail price will peak this summer at slightly above $3.10 per gallon, predicts Patrick DeHaan, who tracks the industry as a senior analyst for GasBuddy.com. That would be up about 8.5 percent from the beginning of this month, according to the US Energy Information Administration.

Other industry analysts concur.

“Gasoline prices are certainly headed upward,” says Sander Cohan, a principal at Energy Security Anal­y­sis Inc. in Wakefield, Mass. But “we don’t see a spike getting too high this summer.”

During the summer vacation season, the firm estimates, the price of crude oil will rise by just a few dollars from the level reached in early April.

Every $1 rise in the cost of a barrel of oil can add about 2-1/2 cents to the price of a gallon of gas. In 2009, for instance, when oil surged upward by $42 a barrel, US gasoline prices rose by $1 a gallon.

Is there risk of a big price spike, as occurred in 2008?

That’s always a risk. For example, an escalation of tensions between Western nations and Iran over that nation’s alleged nuclear-weapons ambitions could have a big impact on oil markets. That said, the environment in energy markets is very different today from the way it was in early 2008. US consumer demand is lower.

The status of refineries is another driver of gas prices. “We’re also heading into a summer with a lot of refinery capacity,” Mr. Cohan says, compared with the tight refinery conditions that existed for much of 2006-08.

A lively debate also rages over the degree to which the OPEC cartel influences prices, whether the US refining industry is concentrated in too-few hands, and whether speculative investors contribute to price spikes.

How would higher gas prices affect Americans’ vacation plans?

Americans are expected to travel more than they did last summer. The economy has improved and the labor market appears to be shifting from monthly losses toward modest job gains. Auto sales have strengthened, which can be “a good indicator that people intend to use their cars,” says Jeff Bartlett, an automotive expert at Consumer Reports.

One factor is pent-up demand after many families remained at home for “staycations” during the recession. And with family finances still tight, a road trip is often the most budget-conscious means of getting away.

Could rising fuel prices hurt the economic recovery?

Yes. The higher oil and gasoline prices rise, the more they dampen the ability of consumers and businesses to spend on other things.

Is the US importing less foreign oil?

Yes, because of the decline in demand. Net imports of oil and petroleum-related products are up a bit since late last year, but below the levels in the middle of the past decade.

Will gas prices affect car shoppers?

Prices would have to edge much closer to the $4-a-gallon peak in 2008 before consumers change their buying habits in a big way, says Jessica Caldwell, a senior analyst at Edmunds.com. Still, today’s prices are high enough to tilt many shoppers toward compact cars, she says.