What comes down, must go up – at least when demand catches up to supply.
So after eight months of driver’s delight in the form of steadily dropping gas prices, the numbers at the pump have started going in the other direction and are expected to keep rising until the summer.
“We think the national peak for gas will about $3 a gallon,” said Gregg Laskoski, senior petroleum analyst for GasBuddy, which tracks data on prices from around the county. “And we think that in Atlanta, the peak will be between $2.65 and $2.85 a gallon in May.”
The metro average price was $2.20 on Thursday, up from just under $2 a gallon a couple weeks back. But it’s still way below the $3.18 average per gallon of one year ago. In fact, gas prices last spring crested at $3.73 a gallon before starting a long, steady slide.
Several factors took the air out of prices. On the supply side, American and Canadian companies were using techniques like fracking to pump oil out of places that had never produced it before. On the demand side, global growth was weak.
Most crucially, faced with falling prices, Saudi Arabia kept on pumping petroleum.
For fracking companies whose business depended on high prices, falling prices have been a potentially mortal threat.
But for consumers, who spend an annual average of $2,400 a household on gasoline, the drop in gas prices is a boost to morale, said Howard Joe, senior vice president and financial advisor for Merrill Lynch in Atlanta.
“It’s found money,” he said. “From the consumer standpoint, it’s like getting a big tax cut.”
He recommends paying down debt – credit cards, mortgage, auto loans – or perhaps donating to a worthwhile charity.
For economic growth, the best use of “found money” would be for every driver simply to spend it, Tanweer Akram, senior economist at Voya Investment Management in Atlanta.
But in general, consumers don’t spend money when they think the higher income is temporary, he said.
“Any reduction in gas prices has a beneficial effect. But even if it’s saved, this means that households can improve their balance sheets and pay off loans.”
In any event, the equation changed at the end of January: prices started going back up.
American demand picked up, but production did not. That raised the price of oil, which typically accounts for most of the cost of gasoline.
Also pushing up prices: Refineries shut for maintenance and to switch over to production of the more expensive, lower-pollution gasoline used in the summer.
When prices jump, it can crimp spending. Roughly 35 percent of people who stop for gas also go into the convenience store, about one-third of them buying at least a snack, according to the National Association of Convenience Stores. When prices are high, purchases at those stores go down.
But prices are only edging up, said Brian Milne, energy editor for Schneider Electric, a French-based global energy management company: Futures market traders are pricing gasoline for June delivery at about 30 cents a gallon more than now.
But Milne thinks the forces behind the current run-up are relatively weak. The price rollercoaster might very well hit the top of another lift hill and start dropping again, he said.
On the demand side, growth in most of the world is modest at best. And supplies are hardly scarce, he said. “U.S. crude supplies now are at their highest point in 80 years.”
The near-term still a driver’s market, he said.
“I can’t be sure that the price will fall back again, but the upside is definitely capped.”
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