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Will Rip-Roaring Gas Prices Take You For A Ride This Summer?

As you drive by your local gas station do you look at prices and get a sick feeling in your stomach?

You’re not alone. Prices are going, up, up, up! According to the Energy Department the price for regular unleaded gasoline has soared 36 cents since the beginning of May and now averages $2.44 a gallon.

True that’s about $1.50 less than last year at this time – but we keep hearing that demand has fallen off a cliff – and supplies of crude are at their highest levels since the early 1990’s. What gives?

Analysts say the rising prices are due to speculation that an improving U.S. economy will boost petroleum demand. Also seasonal factors are playing a role; U.S. gasoline prices normally rise as summer approaches. And refiners are cutting production.

Hmmmm, it seems energy bulls have the momentum on their side – but what about fundamentals. “The fundamentals do not support oil at current levels,” says Fast Money commodity trader Joe Terranova.

Terranova along with many other experts say that fundamentally, there is little reason for the recent price spikes. But that doesn’t change the fact that oil is continuing its march higher -- and as a result gasoline is marching higher too.

Momentum is driving crude right now, he says, not fundamentals. There’s clearly paper demand for oil as an asset.

In fact Terranova thinks the entire energy sector will be dominated by the movement in gasoline this summer.

So, how high does gas go?

“I am anticipating that the average cost per gallon of unleaded gas will be between $2.45 and $2.60 for the majority of the summer; or 10 to 15% higher than estimates,” says Petroleum World.com

However, Jim Ritterbusch of Ritterbusch and Associates suggests relief isn’t too far off. He says gasoline prices could be back down to nearly $2 a gallon by the end of summer. "Demand is going to remain weak, and we've got plenty of excess refining capacity to crank up production."

What’s the bottom line?

Look for prices at the pump to move a little higher in the near term – but, for what it’s worth -- $4 dollar gas shouldn’t be coming back anytime soon!

And if you’re looking for a trade, Fast Money trader Steve Grasso tells the desk in the energy space he likes Occidental Petroleum and Guy Adami recommends taking a look at Schlumberger.


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Trader disclosure: On May 27th, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Adami Owns (AGU), (C), (GS), (INTC), (MSFT), (NUE), (BTU); Terranova Owns (ABT), (TER), (XBI), (RIMM), (IBM); Terranova Is Short (XOM) Call Spread; Terranova Owns (DIS) Call Spread; Najarian Owns (ISIS); Najarian Owns (AMAT) Calls; Najarian Owns (BX) Call Spread, (INTC) Call Spread, (MOS) Call Spread, (XHB) Call Spread, (XLB) Call Spread, (XLU) Call Spread; Grasso Owns (V), (XLF), (RIMM), (AMZN); Grasso's Firm Owns (MSFT); Grasso's Clients Owns (JPM), (OXY), (AMR), (V), (OXY)

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