LexFather

http://www.cspnet.com/ME2/Audiences/...3476ACBBD040A5

Issue Date: CSP Daily News, November 13, 2009

Four-Buck Gas Revisited?
No immediate altfuel, inelastic demand, lack of refineries will drive price back up


WASHINGTON -- Along with the recession, stagnant wages and tax increases, Americans may have to deal with yet another nightmare: surging gasoline prices. Factors are lining up that could end up pushing gasoline prices back over $4 per gallon sometime next year, said a report by AOL DailyFinance.com.

Gasoline demand in 2009 has been comparatively low from taking 7.6 million Americans out of the workforce through layoffs, yet gasoline's price has gone up, not down. It has risen about 20 cents per gallon in the past month to a U.S. average price of $2.65 per gallon for unleaded regular, said the report, citing data compiled by gasbuddy.com. This is at a time when the nation is heading into December and the winter season, when gasoline demand historically has been at its lowest.

Part of the reason why gasoline demand is down, but the price is up is the price of oil, currently around $80 per barrel. Oil—boosted by the weak dollar and by likely increasing global oil demand during the economic recovery—has essentially doubled since hitting a post-leverage boom low of about $35 per barrel a year ago.

The other part concerns the business of refining and the nation's refinery system, the report said. With oil prices high and gasoline demand low, the "crack spread"—the difference between what refiners pay for oil and the total revenue received for products created from a barrel of crude—has been low. That has prompted many refineries to reduce capacity.

According to U.S. Energy Information Agency (EIA) data, refinery capacity utilization was at 80.6% for the week ending October 30, compared to 81.8% for the week ending October 23. Even allowing for normal seasonal maintenance, that decreases refining output. Capacity utilization, in normal times, would be closer to 90%. That reduced refining activity also has helped boost gasoline's price, said the report.

But the real problem concerns the gasoline market's condition when demand ramps up for seasonal (summer driving) and cyclical (at some point, the U.S. economy will start creating jobs) reasons, DailyFinance said. Assuming oil prices remain at a high level ($70 to $80 per gallon), rising gasoline demand will cause prices at the pump to jump about 40 cents to 50 cents per gallon, it said.

The spike could be larger in high-cost metropolitan areas like New York, Boston, Los Angeles and San Francisco. A $3.25 national average for unleaded regular would occur in short order.

And there are more-sobering scenarios. Patrick Kerr, managing director of Amerifutures, a commodity and options broker, told DailyFinance that $3.25 per gallon could prove to be a low price in the quarters ahead, if the factors he argues are boosting gasoline prices remain in place.

Kerr said six factors are likely to continue to put upward pressure on U.S. gasoline prices"

1. More weakness in the dollar.
2. Increasing oil demand in China.
3. No readily available vehicle fuel substitute for U.S. gasoline.
4. Geopolitical tension.
5. Inelastic U.S. gasoline demand (people can reduce gasoline consumption only so much).
6. Lack of new, more efficient U.S. refineries.

"A $4-per-gallon price is possible by the end of this year, but I think we'll definitely see $4 per gallon in 2010," Kerr said.

[B]The United States is heavily dependent on gasoline. Although alternate fuels are gaining market share, gasoline will continue to make up the bulk of the U.S. residential transportation budget, the report said. That points to the need to increase vehicle efficiency. Absent increased efficiency and conservation (reduced driving), consumers' disposable income will be reduced even more, which will act as a drag on U.S. gross domestic product growth.

DailyFinance's bottom line: "Any national economic policy that assumes—or counts on—low gasoline prices long-term is inherently flawed."

I8ABMR

I have been telling people this since the prices dropped . This is not the end. It was more like a "to be continued".

Blackraven

Fuel pricing is always volatile. It can go up and down at any time and is influenced by lots of factors. Whether we like it or not, this is the truth indeed.

I think a lot of people know this (or at least should've known this) by now

rdgdawg

The other part is when the dollar collapses (and it will, it's now a mathematical certainty ie: see gold), the prices will rise (based on oil being supported by a currency other than the dollar) to $6-$7 a gallon within the next 3 years... mark it down

Joeb427

iTrader: (1)

I blame the tree huggers and politicians.
We should have been drilling here for oil for the last two decades and built another more efficient refinery or two.
China's demand for oil will cause prices to rise along with middle east unrest.
We're screwed.

SLegacy99

Please, drilling will only extend our woes. Fuel economy standards should have been set to 40 MPG 25 years ago. Yeah, people are buying alternative vehicles today, but did no one learn after the first oil crisis? And now we have companies like BMW putting a 4.4L Turbo in everything that they can. That will certainly help reduce demand for oil.

The G Man

I agree, drilling will only make gas price cheaper and less incentive for alterntive energy. There is no question gas price will hit $4 a gallon again soon. Look at it this way, gas is a finite resourse, there is only so much to go around. As the supply decrease and the demand increase, economics 101 say the price will go up.

SLegacy99

Putting in the same predicament 20 years from now.

I must say, our hybrid wasn't bought for fuel savings at the time, but gas did hit $4 and it really made sense then and still does today. The reliability of the 400h is much better than that of our RX300.

Jewcano

iTrader: (4)

Heres a suggestion I made in my conservation of natural resources course. The was a contest I believe called the X-Prize or something to see what private firm could get an aircraft into space for a certain amount of money. Why can't a similar x-prize be held for private firms to develop a reliable, efficient alternative to fossil fuels? Instead of taxing the high hell out of gas, give companies an incentive to invest their own money into alternatives for a chance to win a prize, and bank off of the successful design.

We therefore theoretically could expand our drilling/refining here, lower our own costs and dependencies at least a little, not 100% from foreign countries, AND at the same time, have an incentive for folks with deep pockets, and others with not so deep pockets, to try and find alternatives. I see it as a pure WIN WIN.

LIMS407

i want to see our cars startin flyin off the air by natural sun light energy or at least off battery...hahaha

1KhpWrx

iTrader: (7)

You should make it!

bad co

You are lucky this clublexus not some other forum you would have been flamed for the comment. Hypotheticly the 4.4 TT V8 will go into 15k cars using x amount of fuel and it will release x amount of pollutants. While toyota has the 3.5L V6 and will put it into 200k cars, now which engine will use more fuel and polute more. Dont kill the V8 and high performance and engines since they are niche and commit almost no harm what you have to enhance is the bread and butter of the company. Make the I4's and V6's supper efficient because eliminating the high peformance motors is only getting rid of 10% the cars on the road.

Och

iTrader: (3)

Well if theres one good thing about expensive gas and economic recession is less traffic. Since the recession started the traffic in NYC has noticeably dropped down, and quite frankly I love it.

werewolf

Yeah tree huggers forced us to buy hummers and SUVs. Round them up

94lex83457

The X-Prize idea is great. The whole problem with drilling here is that if we started today we wouldn't see a drop of oil for ten years. However, peoples fears would ease and futures traders would stop buying, therefore price goes down. So IDK, you guys figure it out