A Day's Wages for a Loaf of Bread

Gas Prices: 'Tis Not the Season for $3 a Gallon. What Happened?

Gas prices are near $3 a gallon, which is high for the holiday season. Retailers are nervous about the impact on consumer spending, but analysts say prices should start to come down soon.

December 9, 2010

Christian Science Monitor - With only about 2-1/2 weeks until Christmas, the national price of gasoline is $2.98 a gallon, closing in on the three buck mark, a level the nation has never seen this late in the holiday season.

In many states, $3 a gallon would be welcome since they are already much higher. In Hawaii, motorists are paying $3.54 a gallon and $3.51 a gallon in Alaska, according to AAA, the national motorists organization. But, even in New York gasoline costs $3.23 a gallon and in California it’s $3.24. Last year, the price of gasoline was 35 cents a gallon cheaper.

Retailers are nervously watching to see what the higher gasoline prices mean.

“It is an additional shock to your wallet that you were not expecting,” says Kathy Grannis, a spokeswoman for the National Retail Federation in Washington. “But, we are not hearing that consumers are worried in the long run on the effect of gas prices on their wallets.”

When gasoline prices rise, they siphon money directly out of Americans’ pockets.

“This is like a tax increase. If you put more money into the gasoline tank, you have less money to spend on everything else,” Mark Zandi, chief economist of Moody’s Analytics, said in November when gasoline prices were 10 cents a gallon lower.

Back then he calculated that if the rise in gasoline prices were to last through the year, it would cost consumers $35 billion.

“That’s roughly half the cost of providing the tax cut to the upper income group for one year,” he said.

The rise in gasoline prices at this time of year is very unusual.

“Normally, in November, December and January we usually see the lowest gasoline prices for the year because of a decline in gasoline demand,” says Troy Green, a spokesman for AAA in Washington.

According to gasoline analyst Sander Cohan of Energy Security Analysis, Inc. (ESAI), gasoline demand is “sluggish.”

Instead, he says what has hit the gasoline markets is some unexpected refinery outages in October and November. As a result, gasoline inventories dipped and prices rose. Even some planned maintenance went badly as ConocoPhillips’ Bayway Refinery was shut down from the end of September to the end of November and was hit with power problems. Since then the big refinery, which produces 238,000 barrels of product a day, has come back on board.

At the same time the price of crude oil has hovered around $90 a barrel, which is also high for this time of year. Mr. Cohan says the rise is the result of optimism in the energy markets that the tax cuts announced by Obama would stimulate the economy. It’s still not clear if those tax cuts will pass Congress.

Even if gasoline prices peak at over $3 a barrel, Cohan expects it won’t stay that high for long. He says refinery runs have started to increase, which should bring more gasoline on the market.

“Going forward prices are going to have to come down,” he says.

That would be good because the last time gasoline prices were high going into the early winter was 2007. Through the spring and summer, the price of crude oil rose and with it the price of gasoline, which peaked at $4.11 a gallon that July.

“Who knows if it will happen again this spring?” says Mr. Green.

Crude Oil Jumps Above $90 on Cold Snap, Weak Dollar

December 7, 2010

Reuters - U.S. crude oil futures prices rose sharply on Tuesday, pushing above $90 a barrel for the first time in 26 months as cold weather boosting fuel demand and the dollar's weakness kept oil lifted.

Optimism that Ireland will pass an austerity budget on Tuesday helped lift the euro against the dollar.

U.S. stock futures were boosted by a deal struck by U.S. President Barack Obama with Republicans to extend Bush-era tax breaks for two years.

Northwest and northeast Europe are expected to continue to have below normal temperatures and above normal energy demand the next several days.

U.S. heating demand was forecast at 16.3 percent above normal for the week to Dec. 11, according to the U.S. National Weather Service on Monday. Heating oil demand was forecast at 16.1 percent above normal.

Oil investors also will be anticipating weekly oil inventory reports, starting with a report from industry late on Tuesday.

U.S. crude stockpiles are expected to have fallen last week as refiners limited imports, according to a preliminary Reuters survey of analysts on Monday.

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We may never know for sure the combination of circumstances that brought on the energy crisis of 2008. But one factor was almost certainly the Commodity Futures Modernization Act of 2000, which allowed unprecedented levels of speculation in oil futures by investment banks and pension funds, bringing the familiar boom-bust cycle home to the gas pump. - Drill Now? Try Regulate Now., Wall Street Journal, April 7, 2010

To lower international food prices and protect our social interests, the Commodities Futures Trading Commission must use its authority to curb excessive speculation in commodities futures and re-establish strict position limits on speculators (which were successful until removed by the Commodity Futures Modernization Act of 2000). We must regulate and bring transparency to all trading. We can also removing damaging speculative influence on commodities prices by prohibiting participation in commodities markets by those who do not produce, manufacture, or take physical delivery of the commodities. We must create a solidarity economy that puts compassion and care for one another ahead of short-term profits, in the United States and around the world. - The world food crisis: what is behind it and what we can do, WorldHunger.org, October 23, 2008

The surge in world food prices can be attributed to the “financialisation” of commodities due to the Commodities Futures Modernization Act of 2000. The game changed for commodities the minute the legislation passed -- ten years ago. That doesn't explain the surge this year but it does explain the increased volatility of the last decade. - Don't Blame Bernanke: Here's Who's REALLY To Blame For Surging Food Prices, Business Insider, October 12, 2010

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