Wall Street Journal: If $4 Gas Is Bad, Just Wait

[marmar]

If $4 Gas Is Bad, Just Wait
Based on Oil Trades,
Pump Prices Have Room to Grow
By ANNA RAFF and JESSICA RESNICK-AULT
May 23, 2008



Judging from the futures markets, shock at the gas pump is bound to get worse. Maybe much worse.

Since the beginning of the year, benchmark oil and gasoline futures on the New York Mercantile Exchange both have increased by more than a third, but the average retail price of gasoline in the U.S. has risen by 22%. That bodes ill for consumers.

So far, oil refiners and petroleum-product distributors have absorbed much of the increase, but their ability to continue to swallow losses and operate at thin margins is limited.

Many analysts consider $4-a-gallon retail gasoline across the U.S. a foregone conclusion this summer driving season, a period of typically peak demand, but those estimates take only current record-high oil prices into account. Thursday, light, sweet crude futures breached $135 a barrel, more than double the price a year ago.

If oil hits $200 a barrel, which is the upper end of Goldman Sach's prediction for prices over the next six months to two years, the gasoline picture changes quite dramatically. At $200 a barrel, crude alone would cost $4.76 a gallon. Add on the costs of refining and distributing as well as taxes, and pump prices could rise to a range of $6 to $7 a gallon.

U.S. drivers haven't radically changed their behavior, and it is unclear at what price it becomes unprofitable for Americans to go about their usual day-to-day activities, said Eric DeGesero, executive vice president of the Fuel Merchants Association of New Jersey.

"Maybe at $6 or $7 a gallon, it becomes less attractive to go to work," Mr. DeGesero said. "We haven't hit that point yet, but we might soon."

Retail gasoline prices have topped $4 a gallon in Alaska, California, Connecticut, Illinois and New York ahead of the Memorial Day holiday weekend, according to the AAA Daily Fuel Gauge Report. Nationwide, gasoline averages $3.831 a gallon.

Consumers have already taken note, with U.S. gasoline demand down 0.6% this year compared with the same period in 2007, according to the Department of Energy. ......(more)

The complete piece is at: http://online.wsj.com/article/SB121150174129716005.html

[Clear Blue Sky]

1. Gas costs twice as much in Europe as it does here.

[marmar]

2. Useless strawman argument.....

.... Europeans don't drive at the same levels we do, because they don't have to. Gas taxes pay for superb public transit systems in just about every large and medium-sized European city. Their cities tend to be centralized, meaning they can walk or use public transit to shop, eat and do whatever they need to do. You could live in a city like Amsterdam and never need to use a car.

[murray hill farm]

3. The trains in Europe are wonderful.

and they go everywhere u want to go. Buses cover the rest. No need to drive. It is great! Not in the USA though.

[MidwestTransplant]

5. not to mention they drive more fuel efficient cars.

[Clear Blue Sky]

6. All true, but my point is that gas is relatively inexpensive here, meaning that it

has plenty of room to increase.

Public transport in Europe is great. You can easily go from city to city by train. Towns and villages are fairly self contained. Countries there are smaller than many states here. Problem is that our infrastructure isn't like that. We are way more spread out and car dependent. Other than those living in a city we need our cars. It would be a monumental task to develop an infrastructure like that here in the US.

[lonestarnot]

4. Thanks.

[jackster]

7. What about those of us who use oil to hear out homes?

The driving, I can manage at $6 or so - car pool, shop locally, buy a bike, whatever, and the boyfriend works about 5 miles from home. I rent a small townhouse type apt in an older home. We have a programmable thermostat and it's 63 when we're home and 53 when we're not or sleeping. We were VERY cold this winter. I spent over $2000 from Oct - April, average cost of the oil I bought was probably at about $3 a gallon. I'm not prepared to move again immediately to find something that uses natural gas (we just moved) and can't afford to buy in this town, but I need to be here to help with my grandchildren. My landlord doesn't have the money to make any upgrades, she's insulated her side of the house but our side has none. I'm already trying to figure out ways to save - plastic on all the windows, shutting off the dining room, of course wearing more clothes - hats help, fingerless gloves, offering to pay for insulation under the living room floor in the basement, etc. The bf thinks I'm crazy because he says no one he knows is worried about this and he refuses to make any lifestyle changes. He just got a nice bonus at work - since I manage the money I'm going to take that $1000 and fill up our oil tank now and watch him yell. Too bad. I'm worried. In fact, I'm starting to panic. My dreams are filled with this shite.....

[KharmaTrain]

8. Plan Your Future Accordingly

Even though I expect the oil speculation bubble to burst, the high prices are here to stay...or if they do come down, it'll be a temporary ploy to help Gramps in the fall. The run-up is already taking its toll on prices across the board, but there's a lag on how it will affect your own world. For example, food costs will continue to soar quicker as it takes shorter time for it to get to market...but other products will also see higher price tags as their increased costs are passed along. If you're looking for a any appliance or consumer good, best to go for it now than to wait and pay for it. Same applies for things like home renovation (there was a thread here earlier about those prices starting to climb) and that if you can lock in prices now, you may save a couple bucks down the road.

[Liberal_in_LA]

9. bump.

[roamer65]

10. Good. I hope we got into hyperinflation.

It will drive a stake right into the heart of our imperialism.