Saturday, May 31, 2008
If $4 Gas Is Bad, Just Wait $7 a Gallon Gas Is Possible
Judging from the futures markets, shock at the gas pump is bound to get worse. Maybe much worse. Since the beginning of the year, benchmark oil and gasoline futures on the New York Mercantile Exchange both have increased by more than a third, but the average retail price of gasoline in the U.S. has risen by 22%. That bodes ill for consumers.So far, oil refiners and petroleum-product distributors have absorbed much of the increase, but their ability to continue to swallow losses and operate at thin margins is limited. Many analysts consider $4-a-gallon retail gasoline across the U.S. a foregone conclusion this summer driving season, a period of typically peak demand, but those estimates take only current record-high oil prices into account. Thursday, light, sweet crude futures breached $135 a barrel, more than double the price a year ago. If oil hits $200 a barrel, which is the upper end of Goldman Sach's prediction for prices over the next six months to two years, the gasoline picture changes quite dramatically. At $200 a barrel, crude alone would cost $4.76 a gallon. Add on the costs of refining and distributing as well as taxes, and pump prices could rise to a range of $6 to $7 a gallon.