How Oil Price Volatility Could Affect Consumers
Jan. 17, 2011 — -- Drivers may have blocked out of their memory the summer of 2008. That was when gas prices broke $4 per gallon, causing shipping companies, airlines and even restaurants to add surcharges to help defray their costs.
Oil traded at $91 a barrel on Friday, though some analysts are predicting it will break the $100 mark this year. So consumers may have to brace themselves for another hot, expensive summer.
Daniel O'Connell of the brokerage firm MF Global said consumers may have been able to withstand the $100 per barrel price tag in summer 2008, but not this year.
"The economy wasn't what it is today. People didn't have as much trouble filling their huge SUV trucks," said O'Connell, vice president of energy products. "If you see crude spike over $100, it will be very destructive for any recovery that we may be having."
The Energy Department will be releasing its weekly figures Tuesday, one day later than usual because of the Martin Luther King, Jr. holiday. As of Jan. 10, the average price of gasoline in the U.S. was $3.09 a gallon, 34 cents more than a year ago, according to the Energy Information Administration. The West Coast had the highest regional price, at $3.26 per gallon. The Rocky Mountain region had the lowest, at $2.86 per gallon.
As of Jan. 14, California had the most expensive gasoline on the mainland, at $3.33, while Hawaii was the state with the most expensive overall, at $3.70, according to the AAA Daily Fuel Gauge Report. Utah sold the cheapest gas, at $2.80 per gallon.
Gas price increases already may have spiked heating bills because of the cold winter weather in many parts of the country. But while gas prices may be on the rise now, summer could be even worse because of traveler demand.
Many consumer analysts are predicting a return to prices of $4 per gallon or even higher as the weather heats up.
Brokerage firm Auerbach Grayson said oil may reach $117 by the end of the year, according to Bloomberg News.
Morgan Stanley issued a report on Jan 10 forecasting oil prices will be above $100 a barrel in 2011. Growing global demand due to economic growth in India and China and a recovering U.S. economy have caused a decline in crude oil and product inventories, which are contributing to higher prices.
In a survey conducted in November, 49 percent of chief financial officers of oil and gas exploration and processing firms said they expected global demand for oil to "increase somewhat" this year compared to last year. In the BDO USA 2011 Energy Outlook Survey, 22 percent expected the global demand to increase "substantially."
Charles Dewhurst of BDO Natural Resources said the BP oil spill of April 2010 is still contibuting to lower than expected supply levels, placing upward pressure on prices.
"The Gulf of mexico is one of the relatively few areas of the world where there are large untapped reserves of oil," Dewhurst said. "The fact that the permitting process is more difficult is one reason the major oil companies have already decided to leave it alone. You're taking a lot of the future supply of oil out of the picture."
The highest price estimates are still nowhere near the record set for price per barrel in July 2008. Oil traded then at $147.27 per barrel on the New York Mercantile Exchange, the world's largest physical commodity futures exchange.
