If you think gas prices are high now, just wait a few weeks. As the summer driving season looms, things are setting up nicely for $4 gas.
Brace yourself. This could really hurt.
Crude oil prices briefly crested $117 a barrel Monday, as global demand continued to outpace growth in production. The market also was spooked in recent days by a surprising decline in gas inventories in the United States, long the world’s pre-eminent guzzler.
Record crude prices were pushed even higher partly in response to the declining fortunes of the U.S. dollar, which is the currency used to value oil across the globe.
The nationwide average price of a gallon of unleaded gas reached $3.50 a gallon on Monday, according to AAA and the Oil Price Information Service. The average diesel fuel price was $4.20 a gallon.
Now, some folks might think that all of the cost pressures brought on by soaring oil prices, which have roughly quintupled since 2002, are fully reflected in the surging prices we’re seeing at the pump.
Not so. Refining margins have been relatively tight in recent months. If those margins return the levels we saw a year ago, we could easily see $4 gas by Memorial Day.
Plan your vacation accordingly.
Signs of relief are so few and far between that one of the world’s foremost energy traders has changed his position on the price outlook.
Just a couple of months ago, legendary oil man T. Boone Pickens was talking about how crude oil prices might tumble below $90 a barrel as speculation was wrung out of an overheated market. He was so sure that he started shorting the market.
Not anymore.
“The position is long, not short,” Pickens declared during an appearance at Georgetown University last week. “I covered the short position — it was a mistake on my part.”
Now he expects crude to clear $125 a barrel — at least.
“The price will come up, and the price will eventually have to kill demand,” Pickens said.
And that, I think, is the crucial point — for both individual households and the economy at large.
There’s very little hope in cheaply continuing to fuel our consumption habits the same way we have over the past century — particularly with an emerging middle class across the globe beginning to emulate our lifestyle. And until we retrofit our entire energy system, there will be an increasingly high premium placed on conservation.
There are some early signs that prices have finally reached a tipping point that forces people to change their behavior. As noted in today’s front-page article by Steve Everly, gas consumption nationwide has started to decline in recent months.
But driving less is just the beginning of the economic consequences of sky-high energy prices.
Even relatively fortunate households such as mine already are trimming daily discretionary spending to offset energy inflation — downsizing a nasty weekday coffee habit, for example, or casting aside Netflix in favor of $1 overnight movie rentals from Redbox. Even such little things are beginning to show up in softening retail sales when you exclude gas station expenditures.
Longer term, though, there are much more profound implications in terms of how high energy prices affect our lives. It’s already beginning to be seen in growing demand for higher-mileage vehicles. Mass transit will become an increasingly attractive option. Over the next few years, it could drive demand for smaller, more energy-efficient homes. And it’s sure to affect decisions to live closer to work, or to work remotely via the Web.
High energy prices aren’t going away anytime soon, folks. We may be at the front edge of a new, and long overdue, age of energy-driven frugality — whether we like it or not.
Just in time for Earth Day.
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