$5 Gas Likely by July 4th; Get Ready for 'Stay-cation'

Some questions to ponder: Will gas really get to $5 a gallon? Will it matter? What can be done if it does?

AAA reported national gas prices at $4.066 a gallon for regular unleaded, up about 31 cents over just the past month.

There are few analysts who have much optimism for significantly lower prices, but there are possibilities: A recession would send prices lower, as would a policy switch in developing countries away from providing huge energy subsidies that keep prices artificially low.

There are some, though, who don't think the question is as important as it's played up.

Jerry Taylor, an economist at the libertarian Cato Institute, says high oil has some effect on consumer behavior but does not drive the economy as a whole.

"You'd actually find it difficult to find many economists who think energy price increases are capable of setting off inflation," Taylor says. "I don't think gasoline prices or oil prices are quite the macroeconomic threat that some people once thought."

Perhaps not, but they certainly have been the single biggest driver in the stock market for the past three months. As oil prices have gained stocks have retreated and vice versa. It has posed a dilemma for investors.

"In the short term I don't see any positive feeling here," Kresh says. "That doesn't mean I'm not buying. I still think the market has a higher probability of a decline now and more of a correction, and a recession is probable."

There continue to be a number of risks to the upside for oil, primarily geopolitical tensions and supply disruptions that could keep pushing gas prices into the stratosphere.

Sean Brodrick, an analyst with Weiss Research who writes and blogs on energy issues for online newsletter moneyandmarkets.com, says supply problems in the Gulf of Mexico could be especially troubling.

"The drop we're seeing in crude inventories build may be telling us that things are even worse in Mexico than the April numbers told us," Brodrick says. "Yeah, we could get to $5 gasoline by the Fourth of July."

He says that if the government continues not to act on the oil situation by implementing serious conservation measures, the problems will only get worse.

"Our government is acting as if this is not a crisis, that it's just a short-term temporary problem," he says. "No, it's a crisis and we have to deal with it."

© 2008 CNBC.com

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