In December 2005, following Katrina & Rita, I was so sure that gas prices would continue to elevate past the three dollar point by the end of 2006. Boy was I wrong! To make matters worse, in June 2006 I was smugly confident that gas would be three-fifty by the end of 2006. In June of 2006 I wrote the following:
Back on December 30th [2005] I predicted that by the end of 2006 “a gallon of regular gas will exceed $3.00, not due to a natural disaster or terrorism.†I think that prediction might turn out to be a major understatement. At the time regular gas in St. Louis was around $2.20/gallon.
Yesterday when I left my house for dinner regular at the two stations near me was $2.69/gallon. Just a couple hours later the price was $2.88/gallon (shameful I didn’t have my camera with me). Today I noticed the price has settled to $2.84/gallon. This is all for regular. Premium fuel, like my former Audi required, is now over $3.00/gallon. Places in metro East are seeing regular in the $2.94 – $2.99/gallon range.
So today I’m revising my estimate, I think we’ll see regular gas at $3.50/gallon before New Year’s Day 2007. And I don’t mean some spike brought on by a hurricane or such. Just normal everyday pricing.
In reality I was not wrong, just off on my timing a couple of years, give or take a few months. Looking closer at the per barrel price of crude oil and I can see where I made my mistake in timing.
In September 2005 oil was pushing up toward $60/barrel following Katrina+Rita and refineries were knocked out along the gulf coast. The market was in place for a short term gas spike. By December, when I made my premature prediction, the price of a gallon of oil had dropped to just pocket change below $50/barrel. I wasn’t totally off, we had started 2005 in the low 30s per barrel so ending up pushing $50/barrel was a big increase.
This month oil prices have been in the high 80s to mid 90s, a considerable distance from $50/barrel.
Yesterday’s LA Times reported (free registration required) that analysts are projecting a US average around $3.50/gallon in the first half of 2008, as demand increases:
“If anyone expects gas to be less than a new record, they are not thinking,” said Fadel Gheit, senior energy analyst for Oppenheimer & Co. “There is no question it will be much higher than last year.”
Americans will start 2008 paying about 65 cents more a gallon than they did in January 2007, according to the forecasts, and by April could see self-serve regular selling for $3.50 to $3.75 a gallon.
In California — where gas this year has fetched as much as 50 cents more than the national average — $4 a gallon “will no longer be considered a rogue number,” said Tom Kloza, chief oil analyst for the Oil Price Information Service. “It will list for that much in a lot of places.”
The Energy Department’s weekly survey of service stations Monday found the average pump price was $2.980 nationally and $3.261 in California, a couple of pennies lower than a week earlier — but much higher than the same period last year, when the number was $2.341 across the U.S. and $2.607 across the state.
Pump prices usually fall between Labor Day and the end of the year, in recent years dropping about 17% in California. This year they did the reverse, gaining 17%. Â
These will not be peaks and then drop back below $3/gallon. Demand continues to increase, both in the US and from other countries such as China and India. World populations are increasing, as are vehicle registrations and total miles driven. Not a formula for lowering prices.
All you folks with your V-8 SUVs and your 40-mile one-way commutes, get ready to pay lots more. Sadly, the working poor who need a car to get to their jobs will also be paying more as well. While some can handle the increase, others will not be able to do so. And while many can handle short-term increases the long-term impact will be felt as consumers slow down their consuming to afford the gas for the Explorer.
Of course, this is an election year so that adds a whole new layer to the mix. Will the Republicans in Washington find a way to artificially lower/stabilize prices between now and the November 2008 election? Many factors such as the fallout from the subprime mess will really screw up the economic situation in 2008.
What will be interesting is how rising gas prices, combined with next weeks shutdown of highway 40, will impact the voters in St. Louis County with respect to a sales tax increase in August to help support ongoing operations at Metro as well as fund some future expansion. Will the voters be see the folly of being so dependent upon cars that they decide to fund better transit or will they conclude they are already paying more money for gas and therefore can’t afford any more taxes?
Back to the LA Times:
Motorists found the New Year predictions infuriating.
“It’s absurd, ridiculous,” said Eric Mills, 40, a special-event coordinator for the entertainment industry, as he filled up his 1990 Honda Prelude with $3.399-a-gallon gasoline at a downtown Los Angeles Shell station.
“Every year I hear about fuel cells and other promising alternative fuel possibilities — and every year I’m still putting gasoline in my car.”
For all of you just waiting for that new fuel cell Taurus or Caprice, don’t hold your breath. While these alternatives might pan out in a decade or so they are not going to help you this year.  Interestingly, motorists just keep motoring as if one day they will just instantly trade the gasoline powered car for some fuel cell car and things will continue as before. How simplistic.
Today’s Post-Dispatch has a story on people selling storage condos in St. Charles County. For $40,000 you can get a storage unit for your extra car, boat or RV. I guess when your 3-car garage is full that is what you do, buy a storage unit. For these folks, the new reality that we are seeing unfold will come as a big shock. When the market crashed in 1929 it was not the poor man jumping out of office windows. Of course, today, the business man in Earth City doesn’t have operable windows and is likely at most on the 2nd floor.
So my predictions for 2008? Nothing specific, I learned my lesson on that. Gas prices will continue their upward trend, malls will continue to be yesterday’s news as people seek open air street-like shopping districts or actual shopping districts. Projects in far St. Charles County that people think are temporarily on hold will be permanently on hold. Developers and home builders will realize that 2008 is different than 1958 — the demographics are different, cheap gas is gone and people are seeking quality public space. It will look rough while we are in it but in 2009 and beyond we will be thankful.