Did that first $50 fill-up take your breath away? Get used to it. There's no reason to believe prices won't rise all summer long.
Drivers who wince every time they fill up their tanks are starving for some good news about gas prices as the summer vacation season cranks up. But they're not going to get it. According to industry analysts and executives, the pricing pain at the pump won’t ease this summer, and, if anything, will get worse.
Prices vary widely from state to state (Arkansas has the lowest pump prices, California the highest) and from country to country (a Venezuelan fill-up costs less than $2 for the whole tank). Across the globe, the trend is disturbingly constant: Up.
The big run-up in prices is “a perfect storm," economically speaking, Tom Petrie, veteran energy analyst and chief executive of the Denver investment firm Petrie Parkman & Co., told CNBC.
The ingredients for this perfect storm
How, exactly, did this perfect storm get brewing? Here are the ingredients:
Global demand. Strong demand in the economically surging United States and China is an enormous factor in the pricing dynamics. India and the Third World have piled on more demand as well.
Terrorism and war. A terrorist attack in the Middle East, especially on oil production facilities, could hurt supply. Worries about this are leading futures traders to bet on higher rather than lower oil prices ahead. Instability in Iraq also raises questions about that country's ability to add substantially to the world supply anytime soon.
OPEC. Some say the oil-producing nations simply need to pump more oil. But the members of the Organization of Petroleum Exporting Countries are already pumping at 2 million barrels a day above official supply limits. Saudi Arabia is pushing for more, but other cartel members are reluctant.
Venezuela. The situation in Venezuela also makes consumer countries nervous, especially the United States. Leftist Venezuelan President Hugo Chavez is a harsh critic of the United States and is likely unwilling to take high U.S. gas prices into account when determining production goals. Chavez told Reuters an increase in OPEC supply would send a “bad message” to the world, and he blamed high prices on the Iraq war.
Limited refinery capacity. Nobody wants one in their back yard, so a new refinery hasn’t been built in the United States in more than 20 years. That makes it tough to boost supply.
Oil companies’ profits. Some lawmakers say the oil companies are just too greedy. "Big oil companies and refiners are getting rich and middle-class families are getting gouged," Sen. Harry Reid, D-Nevada, said in a recent Senate speech, The Associated Press reported. "It's clearly documented that refiner margins have doubled and tripled. The oil companies weren't content to make 25 cents on every gallon of gasoline. They now make 50 to 75 cents for every gallon of gasoline," Reid said.
Reluctance to tap the Strategic Petroleum Reserve. Many are calling for White House to tap the 660-million-barrel Strategic Petroleum Reserve to add supply and bring prices down. But President George Bush has said the administration “will not play politics” with the reserve. Emptying it, he said, would make the country more vulnerable.
How long will prices stay so high?
There’s very little chance of gas prices dropping this summer, as Americans take to the roads. And unless some of the factors keeping crude prices high ease off, a drop before the end of the year looks unlikely as well.
“I think it will be an extended cycle (of high oil prices),” Petrie said. “Much more like the extended cycle they had in the '70s than anything we saw in the '80s or '90s.”
Another contributor to high gas prices: Americans simply aren’t letting higher costs keep them off the road. A record 30.9 million Americans are expected to drive 50 miles or more during the Memorial Day holiday, which kicks off the unofficial summer driving season, AAA said. That’s up from 29.9 million a year ago.
“Our tight gasoline supply becomes more acute as we move into the warmer summer months, and that’s the way it’s set up,” Trilby Lundberg, publisher of the Lundberg gas survey, told CNBC this week.
“Demand would be rising even more, were it not for these prices, but our strong demand seasonally and from the expanding economy is supporting the price hikes,” Lundberg said.
Go South, young driver
Those driving this summer may find a trip to the South suddenly appealing. Much of the nation's cheapest gas can be found in the Southern states.
Throughout the country, pricing variation has a great deal to do with state and local taxes. The U.S. federal government taxes each gallon of gasoline 18.4 cents. Then, the states add on excise and sales taxes. Nationally, the tax per gallon averages 42.7 cents, slightly over 20% of the price of $2-a-gallon gasoline.
A gallon of unleaded around the world
Country...............Price per gallon..........Country........................Price per gallon
Australia (Sydney) $2.68 (C) .................Japan (Tokyo)................$4.25 (C)
Belgium................$4.87(A)..................Kuwait (Kuwait City)........$0.65 (B)
Bolivia (La Paz)......$1.60 (B).................Mexico (Mexico City).......$2.12 (B)
Brazil (Sao Paulo)...$2.78 (B).................Netherlands...................$5.83 (A)
Egypt (Cairo)........$0.55 (B)..................Norway (Stavanger)........$4.78 (C)
France.................$4.52 (A).................South Africa (Capetown)..$2.31 (B)
Germany...............$5.28 (A).................UAE (Dubai)...................$1.10 (B)
India (New Delhi)...$2.70 (C) .................United Kingdom...............$5.40 (A)
Italy....................$5.06 (A).................Venezuela (Caracas)........$0.14 (B)
Notes: (A) Surveyed in May by Energy Information Administration.
(B) City surveyed by AIR-INC in February 2004
(C) City surveyed by AIR-INC in November 2003
Gas prices and taxes by state
State Regular Taxes (in cents)
Alaska $2.06 39.6
Montana $2.02 46.2
Alabama $1.90 26.4
North Carolina $1.92 44.1
Arkansas $1.76 37.4
North Dakota $2.03 51.6
Arizona $2.13 39.9
Nebraska $2.10 39
California $2.32 50.8
New Hampshire $1.98 32.9
Colorado $1.98 40.4
New Jersey $1.93 36.4
Connecticut $2.07 48.5
New Mexico $1.96 51.4
District of Columbia $2.03 41.4
Nevada $2.25 43
Delaware $2.01 38.4
New York $2.12 39.4
Florida $1.99 48.8
Ohio $1.99 44.4
Georgia $1.89 31.1
Oklahoma $1.90 35.4
Hawaii $2.28 54.7
Oregon $2.28 42.4
Iowa $1.96 43.4
Pennsylvania $2.00 45.7
Idaho $2.06 45.1
Rhode Island $2.07 49.4
Illinois $2.08 41.7
South Carolina $1.85 35.2
Indiana $2.01 39.7
South Dakota $1.99 42.4
Kansas $1.99 43.4
Tennessee $1.90 39.8
Kentucky $1.92 34.8
Texas $1.88 38.4
Louisiana $1.90 38.4
Utah $2.01 42.9
Massachusetts $2.02 44.5
Virginia $1.91 38.4
Maryland $1.99 41.9
Vermont $1.98 37.4
Maine $2.02 41.9
Washington $2.26 46.4
Michigan $2.07 45.6
Wisconsin $2.09 43.8
Minnesota $1.99 40.4
West Virginia $2.00 49.9
Missouri $1.93 37.2
Wyoming $1.90 32.4
Mississippi $1.91 35.4
National average $2.01 42.7
Data as of May 19. Sources: AAA and the American Petroleum Institute
Remember the Carter-Reagan years?
So is there any bright spot? Well, U.S. prices still haven't reached the all-time average high -- adjusted for inflation -- seen in March 1981: $2.85 per gallon. That price point remains fairly far off in most parts of the country, but, then again, some people thought crude oil would never hit $40 per 42-gallon barrel. And historical averages are little comfort to anyone filling up an SUV.
“People may not remember March 1981,” Lundberg notes, but “they may remember last December, when gas prices were about 50 cents lower than they are now.”
The only certainty as the peak summer driving season looms is that gas will cost more.
"There's no educated way to get at (future gas prices)," said Steve Enger, an oil analyst at Petrie Parkman.
Every month, for example, the government's Energy Information Administration forecasts peak gasoline prices, but lately they've been outdated as soon as they appear. Their prediction May 11 for a peak summer price of $2.03 has already been eclipsed. Crude prices, supply and demand, local shortages, geopolitics and environmental rules make all predictions dicey at best.
Pump prices and the cost of crude are very much correlated, of course. If -- and it's a big if -- crude prices stayed steady, then pump prices could rise as much as 20 cents over the summer because of other factors, Enger said.
Drivers who wince every time they fill up their tanks are starving for some good news about gas prices as the summer vacation season cranks up. But they're not going to get it. According to industry analysts and executives, the pricing pain at the pump won’t ease this summer, and, if anything, will get worse.
Prices vary widely from state to state (Arkansas has the lowest pump prices, California the highest) and from country to country (a Venezuelan fill-up costs less than $2 for the whole tank). Across the globe, the trend is disturbingly constant: Up.
The big run-up in prices is “a perfect storm," economically speaking, Tom Petrie, veteran energy analyst and chief executive of the Denver investment firm Petrie Parkman & Co., told CNBC.
The ingredients for this perfect storm
How, exactly, did this perfect storm get brewing? Here are the ingredients:
Global demand. Strong demand in the economically surging United States and China is an enormous factor in the pricing dynamics. India and the Third World have piled on more demand as well.
Terrorism and war. A terrorist attack in the Middle East, especially on oil production facilities, could hurt supply. Worries about this are leading futures traders to bet on higher rather than lower oil prices ahead. Instability in Iraq also raises questions about that country's ability to add substantially to the world supply anytime soon.
OPEC. Some say the oil-producing nations simply need to pump more oil. But the members of the Organization of Petroleum Exporting Countries are already pumping at 2 million barrels a day above official supply limits. Saudi Arabia is pushing for more, but other cartel members are reluctant.
Venezuela. The situation in Venezuela also makes consumer countries nervous, especially the United States. Leftist Venezuelan President Hugo Chavez is a harsh critic of the United States and is likely unwilling to take high U.S. gas prices into account when determining production goals. Chavez told Reuters an increase in OPEC supply would send a “bad message” to the world, and he blamed high prices on the Iraq war.
Limited refinery capacity. Nobody wants one in their back yard, so a new refinery hasn’t been built in the United States in more than 20 years. That makes it tough to boost supply.
Oil companies’ profits. Some lawmakers say the oil companies are just too greedy. "Big oil companies and refiners are getting rich and middle-class families are getting gouged," Sen. Harry Reid, D-Nevada, said in a recent Senate speech, The Associated Press reported. "It's clearly documented that refiner margins have doubled and tripled. The oil companies weren't content to make 25 cents on every gallon of gasoline. They now make 50 to 75 cents for every gallon of gasoline," Reid said.
Reluctance to tap the Strategic Petroleum Reserve. Many are calling for White House to tap the 660-million-barrel Strategic Petroleum Reserve to add supply and bring prices down. But President George Bush has said the administration “will not play politics” with the reserve. Emptying it, he said, would make the country more vulnerable.
How long will prices stay so high?
There’s very little chance of gas prices dropping this summer, as Americans take to the roads. And unless some of the factors keeping crude prices high ease off, a drop before the end of the year looks unlikely as well.
“I think it will be an extended cycle (of high oil prices),” Petrie said. “Much more like the extended cycle they had in the '70s than anything we saw in the '80s or '90s.”
Another contributor to high gas prices: Americans simply aren’t letting higher costs keep them off the road. A record 30.9 million Americans are expected to drive 50 miles or more during the Memorial Day holiday, which kicks off the unofficial summer driving season, AAA said. That’s up from 29.9 million a year ago.
“Our tight gasoline supply becomes more acute as we move into the warmer summer months, and that’s the way it’s set up,” Trilby Lundberg, publisher of the Lundberg gas survey, told CNBC this week.
“Demand would be rising even more, were it not for these prices, but our strong demand seasonally and from the expanding economy is supporting the price hikes,” Lundberg said.
Go South, young driver
Those driving this summer may find a trip to the South suddenly appealing. Much of the nation's cheapest gas can be found in the Southern states.
Throughout the country, pricing variation has a great deal to do with state and local taxes. The U.S. federal government taxes each gallon of gasoline 18.4 cents. Then, the states add on excise and sales taxes. Nationally, the tax per gallon averages 42.7 cents, slightly over 20% of the price of $2-a-gallon gasoline.
A gallon of unleaded around the world
Country...............Price per gallon..........Country........................Price per gallon
Australia (Sydney) $2.68 (C) .................Japan (Tokyo)................$4.25 (C)
Belgium................$4.87(A)..................Kuwait (Kuwait City)........$0.65 (B)
Bolivia (La Paz)......$1.60 (B).................Mexico (Mexico City).......$2.12 (B)
Brazil (Sao Paulo)...$2.78 (B).................Netherlands...................$5.83 (A)
Egypt (Cairo)........$0.55 (B)..................Norway (Stavanger)........$4.78 (C)
France.................$4.52 (A).................South Africa (Capetown)..$2.31 (B)
Germany...............$5.28 (A).................UAE (Dubai)...................$1.10 (B)
India (New Delhi)...$2.70 (C) .................United Kingdom...............$5.40 (A)
Italy....................$5.06 (A).................Venezuela (Caracas)........$0.14 (B)
Notes: (A) Surveyed in May by Energy Information Administration.
(B) City surveyed by AIR-INC in February 2004
(C) City surveyed by AIR-INC in November 2003
Gas prices and taxes by state
State Regular Taxes (in cents)
Alaska $2.06 39.6
Montana $2.02 46.2
Alabama $1.90 26.4
North Carolina $1.92 44.1
Arkansas $1.76 37.4
North Dakota $2.03 51.6
Arizona $2.13 39.9
Nebraska $2.10 39
California $2.32 50.8
New Hampshire $1.98 32.9
Colorado $1.98 40.4
New Jersey $1.93 36.4
Connecticut $2.07 48.5
New Mexico $1.96 51.4
District of Columbia $2.03 41.4
Nevada $2.25 43
Delaware $2.01 38.4
New York $2.12 39.4
Florida $1.99 48.8
Ohio $1.99 44.4
Georgia $1.89 31.1
Oklahoma $1.90 35.4
Hawaii $2.28 54.7
Oregon $2.28 42.4
Iowa $1.96 43.4
Pennsylvania $2.00 45.7
Idaho $2.06 45.1
Rhode Island $2.07 49.4
Illinois $2.08 41.7
South Carolina $1.85 35.2
Indiana $2.01 39.7
South Dakota $1.99 42.4
Kansas $1.99 43.4
Tennessee $1.90 39.8
Kentucky $1.92 34.8
Texas $1.88 38.4
Louisiana $1.90 38.4
Utah $2.01 42.9
Massachusetts $2.02 44.5
Virginia $1.91 38.4
Maryland $1.99 41.9
Vermont $1.98 37.4
Maine $2.02 41.9
Washington $2.26 46.4
Michigan $2.07 45.6
Wisconsin $2.09 43.8
Minnesota $1.99 40.4
West Virginia $2.00 49.9
Missouri $1.93 37.2
Wyoming $1.90 32.4
Mississippi $1.91 35.4
National average $2.01 42.7
Data as of May 19. Sources: AAA and the American Petroleum Institute
Remember the Carter-Reagan years?
So is there any bright spot? Well, U.S. prices still haven't reached the all-time average high -- adjusted for inflation -- seen in March 1981: $2.85 per gallon. That price point remains fairly far off in most parts of the country, but, then again, some people thought crude oil would never hit $40 per 42-gallon barrel. And historical averages are little comfort to anyone filling up an SUV.
“People may not remember March 1981,” Lundberg notes, but “they may remember last December, when gas prices were about 50 cents lower than they are now.”
The only certainty as the peak summer driving season looms is that gas will cost more.
"There's no educated way to get at (future gas prices)," said Steve Enger, an oil analyst at Petrie Parkman.
Every month, for example, the government's Energy Information Administration forecasts peak gasoline prices, but lately they've been outdated as soon as they appear. Their prediction May 11 for a peak summer price of $2.03 has already been eclipsed. Crude prices, supply and demand, local shortages, geopolitics and environmental rules make all predictions dicey at best.
Pump prices and the cost of crude are very much correlated, of course. If -- and it's a big if -- crude prices stayed steady, then pump prices could rise as much as 20 cents over the summer because of other factors, Enger said.
. And if the tree-huggers would let us drill more in Alaska, we could be talkin' gas goin' back down to around 1.40 or less a gallon 
