The Factors That Will Cause $6-Per-Gallon Gas

By Jean Folger | May 10, 2011 AAA
The Factors That Will Cause $6-Per-Gallon Gas

The U.S. Energy Information Administration's (EIA's) April 2011 Monthly Energy Review indicated that during 2010, drivers in the United States consumed an average of 8,877,000 barrels of motor gasoline per day. This represents only a portion of the country's daily transportation-sector petroleum consumption, which also includes aviation gasoline, jet fuel, lubricants and distillate fuel oil. As gas prices continue to rise, some analysts believe drivers could soon be paying $6 per gallon. Here's a look at the contributing factors. (Gas prices are influenced by more than supply and demand. Find out what determines the price you pay at the pump. Check out What Determines Gas Prices?)

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Economic and Political Climate
Sixty percent of worldwide oil reserves and 45% of the world's natural gas reserves come from the Middle East and North Africa (MENA) region. This geographical area has been plagued for decades by political unrest and fighting, largely attributable to its valuable oil reserves, production and refineries. Turmoil in these countries could continue indefinitely, and the instability has investors and speculators concerned about near-term and future worldwide oil supplies and prices.

A weak U.S. dollar also affects the price of gas. The dollar and commodities, including crude oil, tend to be negatively correlated. In other words, as the dollar falls, commodity prices are likely to go up. Since commodities are priced in U.S. dollars, a weak dollar means they are essentially sold at a discount to foreign markets. A weak dollar can also decrease drilling activity since many of these companies sell their oil in dollars. This in turn can limit supply and further drive up prices.

Hurricane Season
Hurricane season starts June 1, and scientists at AccuWeather.com predict a higher-than-normal number of tropical systems and the potential for greater direct impact on the United States than last year. High concentration of offshore drilling platforms and refineries line the coastlines of Texas and Louisiana, both of which are areas of concern for this year's tropical activity. Storms can halt production, which can result in a temporary spike in oil and gas prices. Following Hurricane Katrina in 2005, for example, production was halted for nearly three months, and the nation saw a corresponding spike in gas prices. Interestingly, the National Ocean Industries Associated (NOIA) points out that of the 4,000 platforms in the Gulf of Mexico, 113 were destroyed by hurricanes Katrina and Rita; 108 of these were built prior to 1988. Platforms since 1988 have been built to withstand up to Category 5 hurricanes.

Summer Driving Season
The kids are almost out of school, and that means more families across the country will be hitting the highways for summer vacations. According to EIA statistics, a spike in motor vehicle gasoline consumption typically occurs during the summer months. During 2009 and 2010, for example, monthly motor gasoline consumption was highest during June, July and August. For each of these months, consumption rose above 9,000,000 barrels a day; all other months were in the 8,000,000-barrel range for that year. Increased consumption may strain an already burdened supply, resulting in higher prices. President Obama recently urged world oil producers to increase crude output to keep pace with demand, a strategy that has been used in the past to deflect rising gas prices.

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The Bottom Line
Though individuals have no control over gas prices, steps can be taken to reduce the amount of gas that each person must purchase. Driving less - by carpooling, avoiding unnecessary trips, combining errands, and using alternative means of transportation, like walking and biking - is the single most effective way to save money at the pump. Drivers can also improve gas mileage by making sure tires are properly inflated, turning off the car instead of idling whenever practical (idling gets zero miles per gallon), driving slower and avoiding rapid acceleration.

President Obama said recently that higher gas and oil prices "are weighing on the minds and pocketbooks of every American family." Political turmoil, a weak U.S. dollar, a strong hurricane season, and increased demand as the summer driving season heats up could all contribute to even higher gas prices over the next six months. (Don't believe the water-cooler talk. Big oil companies aren't to blame for high prices. See Why You Can't Influence Gas Prices.)

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