Gasoline prices climb for 45th day
by Tim Manni
The news that gas prices are still climbing comes as no surprise to those of us who drive:
Gas prices rose Friday for the 45th consecutive day as summer travelers hit the highways and refineries hold back on fuel production.
That’s not altogether surprising; oil closed at over $72/barrel today. Like all goods, gas is subject to the economic law of supply and demand, just as we learned in school. However, demand isn’t climbing the way it usually does during the spring driving season:
Retail gas typically rises with demand during the summer driving season. But this year those dynamics have changed somewhat. The government expects motorists to drive billions fewer miles as an expanding population of unemployed workers stays home.
That is also why refiners are cutting back. Even though prices are rising, demand for fuel remains very weak compared with previous years. … refiners say if they were to produce as much gasoline as in year’s past, they’d go out of business.
But there are other factors at work — such as investors looking for a decent return on their money:
Analysts say investors have been piling into crude as an alternative to a falling dollar. The economic stimulus and Wall Street bailout are helping push the deficit past $2 trillion this fiscal year, igniting fears of a weaker dollar and inflation.
“This is all about money flow,” says Tom Kloza, chief analyst at the Oil Price Information Service.
That was the cause of last summer’s historically-high gas prices: there was a lot of money looking for someplace to invest, and oil became a target. Like all bubbles, it became unsustainable and popped, but not before we paid more than $4 per gallon. There are signs that speculators are again flocking to oil, which could mean more pain at the pump until and unless they find another, more attractive target.
And if, as we all hope, the economy is beginning to recover, that will also contribute to higher gas prices:
Crude prices are also rising on growing expectations that at least a modest economic recovery will begin later this year. The International Energy Agency said Thursday that it expects oil demand to fall less sharply this year than it previously forecast. And with oil companies slashing exploration during the slump, investors are already anticipating a supply shortage and price run-up in a few years, says Phil Flynn of Alaron Trading.
