Though crude oil prices are nearly unchanged from their level last year, gas prices around the country were higher last month than any other January on record. According to AAA, the national retail average price for a gallon of self-serve regular gasoline stands at $3.48, nearly 12% more than 12 months ago.
Unfortunately, analysts are predicting that gas prices are only headed higher and could reach $4 a gallon by the summertime. They cite 4 reasons for this:
1)Tensions are rising in the Middle East as rumors swirl of a possible military strike by Israel on Iran’s nuclear facilities. If this were to happen Iran has promised not only to retaliate but also to block traffic traveling through the Strait of Hormuz, the passageway for a fifth of the world’s oil.
2) In recent years, demand for gasoline has been down due to high prices in crude oil. As oil prices have climbed, refiners have struggled to pass on all of the increased costs to consumers. As a result, refineries have seen very low profits, sometimes even losses, and have been forced to shut some of their facilities. Fewer refiners mean less gasoline in the marketplace, which cause prices to move higher.
3) As the warmer months of the year approach, gasoline prices often rise. One of the reasons for this is that there are more people traveling on family vacations and road trips. Another is the annual springtime maintenance energy companies conduct on their refineries which can cause supply disruptions.
4) Gasoline sold during the summertime is different than that sold in the wintertime. Under the 1995 Reformulated Gasoline Program (RFG), refiners are required to use different fuel additives to produce gasoline, which burns cleaner but costs more money, making gasoline prices higher. The Environmental Protection Agency requires this seasonal gasoline transition because warmer weather increases the levels of smog and ozone.
If the analysts have it right and the price of gas sustains over $4, the economy could face some severe headwinds. The more consumers spend on gas, the less discretionary spending will take place.
What do you think? Where do you think gasoline prices are headed? If prices reach $4 what do you think it will do to the economy? Join the discussion below!