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.

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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.

Small Businesses Getting Slammed by Rising Gas Prices

Results of a survey released by the Small Business & Entrepreneurship Council (SBE Council) find that high gas prices are taking their toll on the nation's small business owners. In the group's most recent "Entrepreneurs & the Economy: Trends, Issues and Outlook" survey, 72 percent of respondents say that higher gas prices are impacting their business.

"The fragile economy is being undermined by high gas prices. The weak recovery and policy uncertainties are already weighing on the confidence and minds of small business owners. Now they must find a way to cope with higher fuel costs. Unfortunately, their choices are limited," said SBE Council President & CEO Karen Kerrigan.

The survey, fielded between February 21 and March 2, 2012 by TechnoMetrica, polled 304 small business owners (overall margin of error +/- 5.4 percentage points at the 95 percentage level). During the course of the survey and following its completion, gas prices continued to increase. For example, according to the Energy Information Administration, the weekly average price for regular gasoline climbed from $3.641 per gallon as of February 27 to $3.747 per gallon as of March 12.

Small business owners are dealing with these higher costs by cutting employee hours and raising prices - two options that hurt their competitiveness and the health of the overall economy, according to SBE Council. When asked about their responses to higher gas prices:

• 41 percent of small business owners said higher prices were affecting their plans to hire.
• 22 percent of small business owners have cut back on employee hours.
• 40 percent of small business owners have raised their prices.

Astonishingly, 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.)

SBE Council chief economist Ray Keating noted, "Very few businesses are immune from the negative effects of rising energy costs. As a result, entrepreneurs and managers have to make tough decisions, none of which are positive for their businesses, for workers seeking employment or worried about their current jobs, or for the economy in general."

According to the survey, there is intense dissatisfaction with the overall direction of federal policies meant to help the economy in general: 61 percent of small business owners are not satisfied with economic policies from Washington. Only 6 percent are "very satisfied" while 30 percent are "somewhat satisfied."

In terms of stress levels related to their business finances, 46 percent of small business owners are feeling the same level of stress today as in the past three months, 38 percent say they are more stressed, while 14 percent feel less stressed. Despite this, 42 percent believe their financial conditions will get better. However, 42 percent say they will remain the same, while 13 percent believe their finances will get worse.

Keating added, "While prices at the pump are affected by various factors and events, including political risks in the Middle East and U.S. monetary policy, the President and the Congress play key roles as well by either erecting or removing obstacles to domestic energy production."

Kerrigan added: "The surge in gas prices underscores the need for the Administration to move without haste on advancing pro-energy policies, including the approval of the Keystone XL pipeline. The U.S. cannot allow world events, supply disruptions and global demand surges to control the fate of our economy or global competitiveness. We must take full advantage of the natural resources we have been blessed with as a nation and move forward on a genuine 'all-of-the-above' energy strategy."

SBE Council Chief Economist on Gas Price Hardships and Solutions

On May 20, the Associated Press reported that a new poll showed that 71% of Americans said high gasoline prices will cause some hardship for them and their families, with 41% calling such hardship "serious." Raymond J. Keating, chief economist for the Small Business & Entrepreneurship Council (SBE Council), issued the following statement:

"You can add small businesses to the list of those feeling the pain of high prices at the gas pump. Whether filling up the tank or simply using goods and services affected by the price of gas, very few small businesses are not negatively impacted.

"Understanding the reality that prices are affected by unrest and uncertainty in places like North Africa and the Middle East, what would help from a U.S. policy standpoint? First, the Federal Reserve has been running historically loose monetary policy for over two-and-a-half years now. That has translated into a decline in the value of the dollar, and a rise in inflation and inflation expectations. Since oil is priced in dollars, part of the rise in the price of oil is clearly linked to faulty U.S. monetary policy. Get monetary policy focused on price stability, and that would be a clear positive for energy prices.

"Second, U.S. energy policy clearly works against more energy exploration and development. Bans on both offshore and onshore energy development need to be removed, and the EPA must be stopped from moving ahead with greenhouse gas emission regulations. After all, prohibitions on developing various energy resources and the EPA's regulatory efforts send clear signals to energy firms and investors to move away from, for example, investments in oil exploration and refineries. Markets are forward looking, and therefore, these anti-production actions by government exert upward pressures on prices. Pro-energy production policies would work in the opposite and positive direction."

SBE Council Economist Comments on Gas Prices and Public Policy

Today, Raymond J. Keating, chief economist for the Small Business & Entrepreneurship Council (SBE Council), issued the following statement on rising oil and gasoline prices.

"According to AAA's Daily Fuel Gauge Report, the average price for a gallon of regular gas today was up 20 cents compared to a week ago, by 33 cents versus a month ago, and 73 cents higher compared to a year ago. For good measure, a new Rasmussen Reports survey found that a striking 58% of voters expect prices at the pump to top $5 per gallon by the start of summer.

"Obviously, the recent increases in gas prices and grim expectations for the near term tie back, in part, to unrest in the Middle East generating fear and uncertainty. But there's more at work in the price mix.


"First, it is critical to understand that oil is priced in dollars, and the Federal Reserve continues to play a risky game, with unprecedented monetary expansion threatening to ignite inflation. This, no doubt, has played a role in rising oil prices. Keep in mind that the price of oil increased notably from mid-September to late December, before protests spread in the Middle East.

"Second, it is worth noting that the Rasmussen Reports survey also found that 76% of voters believe that the U.S. is not doing enough to develop domestic gas and oil resources. That's absolutely correct. Policymakers need to open up oil and natural gas resources currently off-limits to exploration and development in, for example, the Outer Continental Shelf, the Arctic National Wildlife Refuge and the Rockies, while also removing barriers to and allowing for expanded Marcellus Shale natural gas development.

"While the U.S. will never be completely energy self-sufficient in a global economy, it is critical that we develop our own resources, and that we do not undermine consumers, entrepreneurs, small businesses and this economic recovery with policies that raise the costs of energy."