Midwest gas prices not likely to hit $4 per gallon

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By Thomas Geyer | Saturday, March 22, 2008 10:47 PM CDT | () comments

Speculation exists about $4 per gallon gasoline as the summer driving season nears, but it is unlikely such prices will hit here in the Midwest, an energy official said.

“We’re forecasting a national monthly average peak of $3.50 per gallon,” said Doug MacIntyre, an oil analyst with the Energy Information Administration, or EIA, the statistical arm of the U.S. Department of Energy.

“That’s a monthly average so we could see some prices around the U.S. higher than that,” he said.

But $4 per gallon? Maybe motorists will pay that along the Pacific and Atlantic coasts, he said.

“I don’t think you would be likely to see it unless there is a major refinery outage in your neck of the woods or a huge number of refinery outages along the Gulf,” MacIntyre said, adding the Midwest is usually below the national average.

In fact, the price of gasoline in the Quad-Cities has dropped a couple of cents over the past several days at some stations.

Dev Bastola, who owns the Sara Lee Mini Mart on River Drive in Davenport, said Saturday that his price for a gallon of regular unleaded dropped a couple of pennies from $3.15 per gallon earlier in the week.

“It’s been $3.13 for several days now,” Bastola said.

Still, that price is about 15 cents a gallon more than a month ago.

Rachel Wellman of Davenport said she was glad to hear gas likely won’t reach $4 around here. “I’d rather walk than pay $4 a gallon,” she said.

The price of gasoline today still stings.

“I used to fill my car once every week or 10 days,” Wellman said. “Now I just put about $20 in the tank, but I don’t go anywhere.”

The cause in higher gasoline prices is demand for petroleum worldwide, MacIntyre said. But in the U.S. demand for gasoline has been down for the past several weeks, about 1 percent. he added.

“It’s a little confusing to people because our statistics show our demand, U.S. demand, for gasoline is down,” MacIntyre said. “But we don’t live in a world by ourselves, and oil is traded globally.”

Economist Ted Woodruff of St. Ambrose University said that demand continues to grow on the Asian continent.

“China has moved its economy more toward capitalism and therefore their economy is growing,” he said. “The same thing has happened in India. India used to be more socialist and now India’s economy is growing. Growing economies need more fuel.”

Consequently, there has been considerable wealth creation in both countries, he said. As a result, more people are able to afford items such as automobiles.

But, Woodruff added, the price of oil, the largest component in the cost of a gallon of gasoline, has shot up partly because the Federal Reserve Board has reduced the federal funds rate in an effort to offset the recent credit crunch. That has flooded the economy with dollars.

“That devalues the money,” Woodruff said. “Oil is traded in American dollars. It means higher prices for oil because now it takes more money to make up for the cheapness of the dollar.”

MacIntyre said that U.S. gasoline stocks are high, sitting at 232.5 million barrels as of March 14. That is 22 million barrels above last year at this time. That coupled with lower U.S. demand has helped to keep prices at the pump somewhat in check.

However, Woodruff said he continues to see people sitting in store parking lots, their vehicles running. “When people do that, gas can’t be that expensive relative to other goods or they wouldn’t be wasting it.”

The price of gasoline today is reaching and exceeding the record mark, MacIntyre said.

In March of 1981, the national average price of a gallon of regular unleaded gasoline was $1.38. In 2008 dollars, that comes to $3.23 per gallon.

He said the higher fuel costs are making it harder for businesses to earn a profit, while they also are pinching consumers who must budget more for gasoline and less for other items.

A look back

Has gasoline reached record levels? In terms of real dollars gasoline has been this high before.

January 1979: 69 cents per gallon. In 2008 dollars: $2.03.

July 1979: 93 cents per gallon. In 2008 dollars: $2.71.

January 1980: $1.11 per gallon. In 2008 dollars: $2.85.

July 1980: $1.247 per gallon. In 2008 dollars: $3.20.

January 1981: $1.269 per gallon. In 2008 dollars: $2.96.

June 1981: 1.362 per gallon. In 2008 dollars: $3.17.

January 1982: 1.341 per gallon. In 2008 dollars: $2.94.

July 1982: 1.31 per gallon. In 2008 dollars: $2.87.

January 1983: 1.21 per gallon. In 2008 dollars: $2.57.

Source: Historical prices and inflation calculator: U.S. Department of Labor, Bureau of Labor Statistics.

Thomas Geyer can be contacted at (563) 383-2328 or tgeyer@qctimes.com.