Why gas prices are going up

Last summer, we saw record high gas prices that sent many consumers trading in their gas guzzlers to buy hybrids and some choosing to ride motorcycles and scooters. Then in the fall, prices went back to more wallet-friendly levels (below $2) and our minds shifted to other issues such as the recession, housing crisis, government bailout of Chrysler and GM, dealer closures, and a variety of economic stimulus packages including the Cash for Clunkers bill. Now, as we head into the Memorial Day holiday this weekend, gas prices are back in the headlines. While prices aren’t expected to jump anywhere near the record levels of last summer, they have been quietly inching up.

The Energy Information Administration (EIA) predicts gas prices to average $2.21 this summer--$1.60 less than last year. Crude oil is projected to be $53 a barrel, down from the average $100 a barrel in 2008. However, since the beginning of May, gas prices have been creeping up with the largest increase last week when prices rose 16 cents from the week prior to $2.24.

Due to the economy, petroleum demand has been weak and that has kept prices low and has forced refineries to cut their inventory. But new signs are showing that we are nearing the end of the recession and consumer confidence is growing. Low gas prices generated a rebound in demand during February and March. A Reuters/University of Michigan survey found that consumer confidence rose in May above economists’ expectations. So, we are at a time where demand is increasing while oil supply is low.

What about diesel?

Historically diesel prices have been less than gasoline, but since September 2004, the price of diesel has been generally higher primarily due to strong worldwide demand. However, last week marked a turning point when the average diesel price fell below that of regular fuel. Key factors for this shift are that diesel fuel consumption is declining in the U.S., plus there is a worldwide decrease in usage as well as output. The demand weakness combined with a recovery in gasoline consumption has caused a shift in price.

The lower diesel price isn’t expected to stay as diesel is projected to average $2.27 a gallon this summer—six cents higher than gasoline. For 2009 the average gas price is expected to be $2.17 and 2010 forecasts jump to $2.42 a gallon. Diesel is expected to average $2.30 for 2009 and $2.69 in 2010 according to the EIA.

What does this all mean for consumers?

If all predictions are correct, we will be seeing an increase in fuel costs this summer as demand increases, but the $4.00 a gallon isn’t expected to return anytime soon. Hopefully that will be enough to help stimulate the economy by encouraging consumers to start spending and hitting the roads again this summer.

For more information on gas prices, alternative fuels, and saving fuel, see our guide to fuel economy.

—Liza Barth 

Comments

[Bill Szamanski]

If people don't start screaming now about 2.45 prices then it will surely be over $4 by the end of June. They have risen 55 cents in 3 weeks and there is no likely hood that it will reverse. Another 2 weeks and it will be $3 and in another 3 weeks it will be $4 for the fourth of July. The oil prices are what caused the economy to go south so fast with people making sure they had money to get to work rather than the extra spending. There went the RV's, SUV's etc. and the car industry suffered. You are an idiot if you think gas prices will not reach $4 this summer!

[Cale]

Bill's comments reflect the frustration many drivers feel about gas prices. Helpless to do anything about them.

Here's a good way to lower gas prices, guaranteed, just stop driving. Your gas bill will go down significantly and you won't contribute to the demand for gas that drives prices upward.

Obviously, this isn't a practical solution but neither is blaming the companies that sell the gas. You could argue that they don't refine enough gas, that they don't invest enough of their profits in the research of alternative energy solutions, that their oil exploration/transportation activities can be reckless, and you could argue that their business relationships in volatile parts of the world can undermine humanitarian efforts and regional stability. But you can not argue that they should not be allowed to set the price of gas they sell.

As a nation, we are helplessly hooked on gasoline for transportation. No country wastes energy as conspicuously as the US. Our hunger knows no limits. And because of this insatiable appetite, it comes as no surprise that so many people argue that gas should be cheap.

But the only way to make gas cheap is to stop buying it. Think about it.

[dougm]

As to what happened last summer, when a barrel of oil was trading for $150, it was primarily market manipulation of prices by former Enrom employees working for the big Wall Stree investment banks that caused the hughe price spike. We were told it was just the natural process of supply and demand, even when demand was going down and prices were still climbing, supply remained roughly constant. The larges oil company in America today is Morgan & Stanley not Exxon. It will happen again.

[jerryg]

In the 70's when we had the gas shortage that was a lie. At the time I was a Manager of a 7-11 store and one of my regular customers worked on the barges that carried gas to the storage facility in the Chicago area. He told me he had FIVE barges to work on but couldn't because they were full of gas and so were all of the storage tanks. But we could only get $5 at a time. The oil companies are munipulating the prices in order to fill their pockets, and the Hell with the little people. The same thing is happening now.

[Rose]

Now that a holiday is just a few days away, all gas station prices are going up fast. Now if this isn't gas gouging, then what would you call it? And, isn't there suppose to be a law against this? Why doesn't our government do anything about it, but then we all know that answer, the oil company's are very powerful and our government cannot control them. Now watch, after the holiday on Tuesday, the gas stations will lower their prices. I would hope our Government would take action against the oil companys since there is a law on gas gouging and if you break the law, you have to pay for it somehow, just like anyone else that breaks the law.

[Bill]

Yeah stop buying it is the solution. I will just walk 20 miles to work and 15 miles to church and 120 miles to take the kids to college. Next you will tell me to take Mr Obama's advice that I should put air in my tires. This is the real world and the fact that people do not think prices will go up much and are accepting the 30 cent a week increases, should not be surprised that it gets back up to $4 by July. Where refineries were up to 110% capacity last year they are only at 65% this year. So the oil companies are manipulating the prices up to make up for the lack of sales.
Here is a question "NO MATTER WHERE IN THE WORLD THERE IS A CALAMITY OR STRIFE, WHY IS IT THEY TELL US THIS IS WHERE WE GET 70% OF OUR OIL?" It changes every week, and in some cases there isn't even oil in that part of the world but yet they tell us we get all our oil there and raise gas prices.

[OldsWidow]

The OPEC oil ministers, whose countries account for about 40% of the world's entire crude-oil supply, also renewed their commitment to stick to their agreed quotas<<< should say GREED quotas

[Jim]

If the oil companys wasnt getting so rich over this every time and nobody has enough gull to step in and do anything it will get out of controll again they keep putting more money in there pocket and the rest of us are taking it all out for gas its buy gas or pay the morgage again we will see it if it dont stop

[Thomas]

AFAIC and FMO (from my observation), gas prices are going up because the companies distributing them have the right to profit. In the mid 70s, oil was $50-$55 a barrel also. Back then, gas cost around 65¢ a gallon. In the late 80s, it was approximately the same per barrel (if you want to consider the cost to refine "unleaded" gasoline) and the price was around 90¢ a gallon. In the 90s, it was up to $1.69 a gallon, yet still was around $50-$60 a barrel. Add into the company's right to profit, the fact that BP/Amoco owns nearly every gas station in a 10 mile stretch and you have a game of hiking prices. When I first moved to Alabama from Michigan/Illinois in 1999, I purchased a 5 gallon bucket of gear oil for my transmission and transfer case and another for my axles. 6 years later, I purchased another bucket for each (from the same distributor) and the price was exactly* the same, yet gas prices were $1.50 higher per gallon. IMO, this is not related to anything other than greed. We need it, so they raise it and quite possibly they're raising it while they can, before no one can afford to drive.

We had Exxon/Mobile raise prices before Hurricane Katrina hit, and the reason was because they had to shut down their refineries to perform maintenance and upkeep, that they failed to performed for 5 years. All so they wouldn't lose money when they shut everything down. They played the media and said the prices were high because of the hurricane.

Furthermore, I could have swore that there was a Federal Mandate that regulated gas prices. Something to the effect of one station can be no more or less than 4¢ higher than another. This I see violated every day (if it still applies), and I am considering filming this with a camcorder, or installing a dash cam to my touch screen head unit.

Right to profit. Go to a store and find a loaf of bread for $1.89 and then go next door and see the same exact loaf of bread for $2.69. They're doing the same thing, but only one company is distributing.

Assume the position, the Standard (Oil) position.

RE: Bill,

You are right that we cannot stop buying completely, but we can stop buying from one company. With Exxon/Mobile - BP/Amoco ties and them buying everyone out, we are left with one company in the US AFAIK, and that's Wesco/Conoco/Phillips. Having lived in Michigan, I know this to be a caring company for the people who own the mineral rights. So, if we all bought from them, the others would have no choice but to lower their prices to gain business. Stay away from them for 6 months and see how much the prices drop. Stay away from them entirely, and we'll all see how much the bottom line is within a year.

Just my 2¢

[Bill]

Just wanted to say $2.76 a gallon this last week. Any takers on $2.95 next week? $4 is around the corner and we will be setting a new record high!

[june]

What I don't understand is that at one Costco, gas was $2.59 and about 10 miles down the road, at another Costco it was $2.79 a gallon - this just doesn't make any sense to me at all.

[DP]

On Friday May 29, 2009 a local 76 Station had Regular Unleaded for $2.64/gal.
On Monday 6/1 it was up to $2.74
On Tuesday 6/2 it was up to $2.79
This morning, 6/3, it was up to $2.84

They raise the prices simply because they CAN.

[Chris]

I live in a relatively small town and I travel to school Mon-Thur and it's 80 miles away. I can't just up and leave this town because there aren't a lot of companies hiring right now. Going to specific gas stations seem like a good idea, but in most cases people like myself don't really have a lot of options. Gas where I live is 2.95 right now. The gas industry makes billions of dollars in revenue a year, even when the prices are low, and you mean to tell me that they can't keep those low prices. When it comes down to it, no matter what kinds of hybrids or gas saving vehicles that we buy, we are still DEPENDENT on oil. Even with that, most people can't buy these extremely expensive vehicles just to save on gas. The government can't regulate the oil industry because they would be tampering with a business and if you owned a business I don't think you would want the government telling you what you can and cannot do with it. The only way the government could intervene is for one of those companies to become a monopoly. While I don't agree with the prices of gas continuing to go up there is really nothing we can do about it as long as we're dependent on them to get us to where we need to be. This country is built to make the rich richer and to KEEP the "middle-class and poor" in poverty. I'm not sure about what we can do to break this chain but I'm hoping that we can have some adequate results to come in these following years.

[Mike]

The true reason why we are paying for high prices is that the oil exporters and the big oil futures players are drumming up the prices. They have everything to gain with higher oil prices and who ends up paying: us, every driver, every hard working person trying to make ends meet.

Let's drive down the prices by driving less... Pass on the word!
Less demand == lower gas price!!!!

[Paul]

One reason: Commodity Futures Trading Commission (CFTC) exempted IntercontinentalExchange, the ICE

Michael Masters, Portfolio Manager of Masters Capitol Management explains why ICE being exempted in the U.S. by the CFTC is a problem.

Michael Masters, Portfolio Manager of Masters Capitol Management says:
" Currently any futures contract that calls for delivery inside the U.S. , we are the largest consumer of energy in the world, is automatically subject to CFTC regulation. Any futures contract that cash settles against a US contract with physical delivery provisions is also automatically subject to CFTC regulation unless specifically exempted." If not exempted than no person inside the U.S. may lawfully trade that contract. I do not think that there is anywhere in the world that would want to lose U.S. speculators OR U.S. physical players. The 60% of the volume on the cash SETTLED WTI CRUDE OIL contract on the IntercontinentalExchange, the ICE, is traded by U.S. entities. If the CFTC had not exempted ICE from regulation, those U.S entities would not be able to trade that contract and it would have been very difficult for that contract to ever get off the ground. "

[Paul]

To find out why gas prices go up watch:

Oil Price Speculation, Part 1
Event Date: 06/23/2008
Product ID: 206134-1

http://www.c-spanarchives.org/library/index.php? main_page=product_video_info&products_id=206 134-1&showVid=true

[Paul]

When the Baku-Tbilisi-Ceyhan (BTC) pipeline came online in 2006 Saudi Arabia cut production.

[Paul]

Fadel Gheit has done this for 30 years and he said at the oil price speculation hearings, shown on C-SPAN, that a profit can be made at $45 a barrel, that means in 2008 $100 of the $147 per barrel went to speculators. If the CFTC would stop speculation those at the hearings said the price at the pump could drop to $2 in 30 days.

1. Oil Price Speculation, Part 1
Event Date: 06/23/2008
Product ID: 206134-1

http://www.c-spanarchives.org/library/index.php? main_page=product_video_info&products_id=206 134-1&showVid=true

[Matty]

I don't know what upsets me off more - that the media keeps saying "At least it's not as bad as last year" (way to avoid the issue), or that once again, our elected officials refuse to do anything about it (most likely because they're getting their cut in all of this). The price of a barrel of crude is low - the only reason prices are high is do to some idiot's speculation.

So America, keep being quiet and bending over for the oil companies. They appreciate your silence.

[MANUEL DIAZ]

As most of the comments that I see here, the sad truth is that, like in most other cases, it all comes down to the dollar figure. It is a culture that even contaminates the moral of this entire goverment system. we can see this example on something as basic as a traffic violation. the state wins on your speeding ticket..."pay me some money and then you can go on your way" do we think that if we were to be trown in jail for 4 to 8 hours for a traffic violation, we would have so many speeding tickets?? of course not...nobody will be making any money on crime...you lose, they win. same on gasoline..big taxes...cigarretes..big taxes...and anything they can think about to make money...but..like one commented here...it seems that we like it this way...we protest..but we continue to pay... want to pay $100 per gallon of fuel? lets all stop driving for a week...and we will call the shots on this one!!

[John B Renard]

Gentle people,

The prices are rising because those that control them know that they can raise them with impunity. There is no accountability, just like in the Congress of the United States. Just like in State and Federal Government agencies nationwide. The majority elected to be governed as a Socialist system. Welcome to reality.

[bearcub]

time to get screwed again by big oil

[sheryl palmieri]

I want to know why the government is allowing this to happen to us AGAIN. They are there to bail out the big guns of these companies who pay their employees millions. There are so many people out of work right now and many others on the way to be out of work. How are we supposed to afford to buy gas to ever look for work or drive to work when our hours are being cut or our jobs are being taken away.My husband and I are older and he is retired but has to work 2 extra jobs. I work also but my hours are being cut in half. We can't even travel to see out grandchildren in another state. My God, this is america. What the heck are these people on wall street thinking. They are ruining our families.

[Sue]

I can't believe consumers haven't figured out that this same scene plays out every year. As soon as school is out, gas prices go up and it's been happening every year since the great oil shortage farce of the late 1970's. Everyone who suggests the cure is to seriously cut back is absolutely right on. Sure, maybe it won't happen instantly, but this is exactly what drove prices down from nearly $4.00 or more even if consumers were forced to cut back because of the price. There are also serious issues with transportation of food within the continental US to and from where it is actually grown, which uses unnecessary gas. For example, potatoes grown in Arizona have been shipped to Idaho for packaging, just so the label says "Idaho Potatoes." Guess who pays for this?

[Art Schwartz]

Put only $12.00 in your Gas tank at a time. Your car will get better gas mileage. This way the oil companies will have so much unsold gas they will have to lower the price just to get rid of it! If that does not work make the oil companies prove without doubt how much profit they are making and put a Cap on their profit margin,. If they exceed that CAP and they get caught cheating give the Oil company Executives Life imprisonment for their crimes without the possibility of early parole. That will keep them in line! Also force GM and Chrysler to develop cheap fast Hydrogen cars in a 18 months or have all bail out money go away. We landed a Man on the Moon and we can make cheap fast Hydrogen cars if the car companies are forced to do it. Then we can tell the Oil producing countries and companies where to go!