Gas prices tend to go up during the busy summer travel season, but why are they going up now, when we’ve got snow in 49 states?
Photo: Cindy Perman
As it turns out, the very same reason gas prices typically go down this time of year is the biggest reason why they’re now going up — demand.
Americans may drive less in the winter months, but demand for automobiles and gasoline is surging in emerging markets like China, India and Brazil.
“It’s an interconnected market — one guy can sneeze and another part of the world catches a cold,” explained Robert Sinclair, the manager of media relations for AAA New York.
Sometimes prices jump in late fall if the cold weather starts early, generating competition for crude oil between home-heating oil and gasoline. But that didn’t happen this year, and prices rose anyway — mostly because of this demand from growing markets.
A couple of other factors have also contributed to the nonstop ascent of gas prices since last summer: Rising crude-oil prices, since oil is used to make gasoline, and the weak dollar, since all oil is traded in dollars and when the dollar is weak, foreign currencies buy more dollars — and more oil.
Now, here’s the really bad news: Prices are expected to continue rising straight through the summer driving season.
Right now, at the turn of the new year, the reason is investors.
A new year wipes the slate clean for investors and Sinclair notes that there’s a lot of money sitting on the sidelines that investors will likely pile into rising crude oil now that the new year has turned. Oil prices, which fell from $145 to $30 during the financial crisis, are now approaching $100 again.
That brings us to March, when refineries shut down to retool and start producing summer blends of gasoline. (Different blends are used to for winter and summer to limit pollution.) If production is shut down, that means supplies decline — and prices go up.
And that, of course, leads us straight into spring, when Americans emerge from their winter hibernation and hit the road.
And we’re driving more now than ever, thanks to the recession and all the new hassles of flying from public patdowns to paying extra for luggage. Plus, as the economy recovers, demand for gasoline in America will continue to rise.
“Everyone’s looking forward to a better economy but with it, would likely come higher gasoline prices,” Sinclair said.
Throughout all of this recovering, retooling and road tripping, let’s not forget the Chinese and others in emerging markets, who will continue to buy more cars and more gasoline.
The Energy Information Administration projected this week that gasoline prices could hit $4 a gallonby September, but AAA oil analyst Tom Kloza says we could hit $4 by early spring. John Hofmeister, the former president of Shell Oil, recently sent a ripple through the market when he said gas prices will hit $5 a gallon by 2012, citing deep-water drilling bans in the U.S.
It may sound outrageous but when you see all the indicators pointing to higher prices, and nothing emerging as a significant counterforce to the China machine, it’s possible.
The relentless ascent in prices could be one reason why we’re seeing such a huge push toward hybrid, electric and alternative-fuel vehicles in the new year.
“I think 2008 [when oil topped $145 and gas topped $4] put the fear of God in a lot of people — especially manufacturers,” Sinclair said.
Fuel-Saving Tips
In this digital age, there’s absolutely no excuse to not be checking a fuel-comparison site like GasBuddy.com. AAA also tracks gas prices state-by-state on FuelGaugeReport.com and will even go so far as to help you calculate the total fuel costfor your next road trip.
GasBuddy also offers the following fuel-saving tips:
- Don’t accelerate or break too hard
- Use cruise control
- Keep tires properly inflated
- Avoid heavy loads
- Find discounts (coupons or gas-rewards credit cards)
On your mark … Get set … Drive!
More on Cars & the Economy:
- Housing Market Slips Into Depression Territory
- 11 Signs the Job Market Is Improving
- The 10 Jobs Most In Demand in 2011
- Hot Cars From the Detroit Auto Show
- Where Have I Seen That Car? Famously Familiar Vehicles
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