By Myra P. Saefong, MarketWatch
SAN FRANCISCO (MarketWatch) — When it comes to gasoline, U.S. consumers should be gearing up for more bad news in the weeks to come, followed by a big dose of relief that retail prices probably won’t top $5 a gallon this year.
The bad news is that the nation’s consumers are paying $1.5 billion per month on motor fuel, according to the Oil Price Information Service (OPIS), and prices at the pump may soon top $4 if they haven’t by the time you read this article.
But the good news is that consumers will eventually start to see prices finally fall from their lofty levels.
Thursday’s action in the commodities markets appear to offer a hint of what’s to come. Crude-oil futures CLM11 -0.04% dropped nearly 9%, dragged down by a selloff in precious metals and fears of diminished demand. Read about Thursday’s oil action.
“I don’t expect us to see $5-a-gallon gasoline this year,” said Brian Milne, refined fuels editor at Telvent DTN. “We are already seeing demand destruction in front of $4 a gallon.”
The average U.S. price for a gallon of regular gasoline stood at $3.985 a gallon, according to Thursday’s AAA’s Daily Fuel Gauge Report, which is published in conjunction with OPIS. It’s at its highest level since June 2008, and prices have been climbing every day since March 22. See the latest report.
Consumers will likely see retail prices “somewhere south of $4” during the driving season, said Tom Kloza, chief oil analyst at OPIS.
Even if prices do surpass $4, “it’s not a step toward $5 a gallon or a ‘new normal’,” he said. “We’ll pay $5 a gallon or more later this decade but not in 2011 and, I suspect, not in 2012.”
Tipping point
Fuel demand already seems to be buckling under the weight of near-record gasoline prices. Retail prices last hit a record of $4.114 a gallon on July 17, 2008, according to AAA’s Daily Fuel Gauge Report.
Motor-gasoline product supplied over the last four weeks, an indication of demand, fell 1.9% from the same period last year to nearly 9.1 million barrels per day, according to an Energy Information Administration report for the week ended April 29.
Gasoline demand will “start to contract on a year-on-year basis because not only is the economy creaking its way through the early stages of the economic recovery, but also because prices are becoming prohibitively expensive,” said Matt Parry, chief economist at energy consultancy KBC.
Still, even at these levels, consumers’ actual tipping point, or the price level at which they truly begin to change their buying habits to cut gasoline consumption, is not clear.
“For some consumers, a sustained period of prices between $3.50 and $4 is when we being to see changes in driving behavior and patterns that result in reduced driving and, subsequently, reduced gasoline demand,” said Troy Green, a spokesman for motorist group AAA, which will release its Memorial Day holiday travel forecast on May 19.
But the price is going to be different depending on the individual, he said.
“Some people have cut back on driving by consolidating errands/trips, using public transportation, carpooling, telecommuting, and gasoline prices near/at/above $4 are significantly impacting those who are living paycheck to paycheck,” said Green.
Really, “most people think a ‘fair’ price for gas is something less than the posted price, no matter what that posted price is,” said Jeff Lenard, a spokesman at the National Association of Convenience Stores, which represents an industry that sells 80% of the nation’s gasoline. Read about gasoline consumers’ blame game.
History’s tale
Along with the usual consumer qualms over high prices comes questions over what brought prices to these levels in the first place.
