Will gas top $4 a gallon this summer? I say yes.
Before you go jumping all over the place and pointing out that I have done no real market analysis to back up my prediction, I would like to point out: I have done no real market analysis to back up my prediction. This is just a gut feeling.
Like a good, Birkenstocked liberal, I was listening to NPR on my commute home today, and it was announced that gas prices had just topped $3 a gallon in the US.
This time around, prices are being blamed on reduced output at refineries, although no clear-cut reasons are being given for the reduction.
Refineries operated at 87 percent capacity last week, below pre-Hurricane Katrina levels in 2005. They produced 8.9 million barrels of gasoline per day, while the country has been consuming 9.2 million barrels per day, or 1.6 percent more than this time last year.
NPR had the audacity to quote someone, I believe it was a AAA representative, as claiming that the refinery difficulties stem from refinery technician lay-offs in the 1980s. I've never been good at economics, and my memory of the 80s is sort of clouded by hairspray fumes and Madonna lyrics, but something about that explanation struck me as disingenuous. Lots of companies had lay-offs in the 1980s, but most major corporations have managed to rehire people, you know, over the past couple of decades.
Also, it's not as if gasoline demand increases are unpredicatable - summer's coming, so prices are expected to increase, but the increase started much earlier this year than last. It would seem to me that oil refineries have had twenty-odd years to correct their personnel reduction.
A slightly more plausible explanation that encompasses a broader range of possible reasons for the gas price hikes:
Conspiracy theories aside, a number of factors are preventing more supply from flowing into the U.S. market. The overall picture is a system under such strain that any outages or disruptions ricochet quickly into retail prices. Because of high costs and a lack of public support, refiners haven't built an entirely new plant since 1976. While they've been expanding existing plants, the industry isn't keeping pace with growing demand. Any additional stresses -- hurricanes such as Katrina or the persistent power outages -- curb output. Add to that a shortage of skilled workers and government rules mandating cleaner fuels, and the reasons behind scarce supplies emerge.
I love how they manage to turn something like suspecting that oil companies are greedy for profits into a conspiracy theory. Nice touch. The thing about conspiracy theories is that they are, on occasion, correct. I remember how, when I lived in the Silicon Valley back in 1999-2002, and we were experiencing those "rolling blackouts", most everyone was grumbling about how suspicious the entire thing was. NPR and mainstream news outlets called it a "conspiracy theory" back then, too, but it turned out to be, well, a freaking conspiracy.
As someone who does care deeply about the over-consumption of fossil fuels, even I understand the importance of maintaining an afforadable fuel supply to the US economy until alternative infrastructure can allow us to rely on other means of moving ourselves from one place to another. For those of us with fewer options other than driving, gas prices are very important. I'm curious as to why the media isn't delving more into this topic, really investigating why prices are going up the way they are right now.
Lots of people believe that this current supply reduction has everything to do with the kind of accidentally-on-purpose reduction in output that occured during the well-engineered energy "crisis" that we experienced in California back in 2000 and 2001.
It looks as though certain Congressional minds are at least pretending to care about the whole thing.
The recent hike in gas prices has prompted Sen. Charles Schumer - who has received plenty of calls from those motorists - to call for a federal investigation into the oil refineries that make the gas.
He said he thinks the hefty prices could have resulted from oil companies being lax on maintenance, thus short on capacity.
"The looming question is, are they putting money into maintenance and keeping up refineries as they should?" Schumer asked. "Or are they happier with lower production and higher prices?"
Me, I'm going to call it now. Gas prices well above $4 a barrel on the West Coast and averaging $4 a barrel nationally, before July. That's what I'm putting my money on. I'll be happy to eat humble pie if I'm wrong (note to self - dig up good recipe for frugal humble pie).
Next up: What to do about the rising cost of gasoline. Does it make sense, from an economic standpoint, to take the bus (if that's even an option)?
(Photo by xophersmith)