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Friday, March 30, 2012

Gas Prices and the Summer Driving Season

The summer driving season is defined as running from April to September. The question, of course, is: How high might gas prices go?

In early March, the Energy Information Administration (EIA) released its latest "Short-Term Energy Outlook," which includes projections on the price of gasoline. The EIA offered the following estimate: "EIA expects regular-grade motor gasoline retail prices to average $3.79 per gallon in 2012 and $3.72 per gallon in 2013, compared with $3.53 per gallon in 2011. During the April through September summer driving season this year, prices are forecast to average about $3.92 per gallon with a peak monthly average price of $3.96 per gallon in May."

According to the Daily Fuel Gauge Report, as of March 28, the average price of a gallon of regular gasoline came in at $3.911, up from $3.698 a month ago and $3.587 a year earlier.

It's hard to ignore the fact that gas prices have crept higher before the summer driving season kicks in. Keep in mind that the highest average price for regular hit $4.114 in mid-July 2008.

Indeed, some look at the EIA estimates as optimistic. And a host of uncertainties do exist, such as the eventual outcome of the controversy over Iran's pursuit of nuclear weapons.

The increase in gas prices that already has occurred, no doubt, has taken a bite out of the economy. Prices going even higher will generate added negatives. But it is not just about summer vacations and leisure activity.

A TechnoMetrica survey of small business owners done recently for the Small Business & Entrepreneurship Council noted how small firms are impacted by higher gas prices, with 72 percent of respondents saying that higher gas prices are impacting their business, 41 percent of small business owners saying higher prices were affecting their plans to hire, 22 percent of small business owners having to cut back on employee hours, and 40 percent of small business owners having to raise prices. In addition, 43 percent of respondents agreed with the following statement: "My business will not survive if energy prices continue to remain high or increase further." (23 percent strongly agreed with the statement.)

Unfortunately, the Obama administration continues to work against expanded domestic energy development (thereby, working against lower energy costs) through, for example, increased regulation, proposed energy tax hikes, and restrictions on exploration and production.

But what about announcements on March 28 that supposedly move to increased offshore drilling? The Wall Street Journal, for example, reported: "With gas prices holding steadily higher, the Obama administration took steps toward oil and gas exploration off the coast of Alaska and in the Atlantic Ocean as it sought to combat criticism that it is hostile to fossil fuel development." Specifically, the Department of Interior approved Royal Dutch Shell's plan for responding to oil spills in Alaska's Beaufort Sea, and announced that seismic surveys off part of the East Coast could be allowed in 2013. Unfortunately, this is more rhetoric than substance. The Royal Dutch Shell step is positive, but more permits are needed. And as for the East Coast, the administration remains opposed to drilling there.

As gas price rise, the Obama administration is trying to say that there's nothing it could have or can do. In reality, though, oil prices, and therefore, gasoline prices, mot certainly can be affected by allowing for increased oil exploration and production. Indeed, anti-domestic energy production policies date back to the 1970s, with the current White House pushing it to new levels.

The U.S. needs real, major changes, away from anti-domestic energy policies. If so, summer driving, small businesses and the economy will all benefit accordingly.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is "Chuck" vs. the Business World: Business Tips on TV.

1 comment:

Used Car said...

Wall street speculation may also be affecting prices. People like to blame everything on Obama but there are lots of factors at play.