Spring Gas Prices Are Set To Reach Record Highs-Could Reach $4.25 By April

According to a recent article from the associated press, spring gas prices are set to reach record highs.

At $3.53 a gallon, prices are already up 25 cents since Jan. 1. And experts say they could reach a record $4.25 a gallon by late April.

"You're going to see a lot more staycations this year," says Michael Lynch, president of Strategic Energy & Economic Research. "When the price gets anywhere near $4, you really see people react."

The surge in gas prices follows an increase in the price of oil.

Oil around the world is priced differently. Brent crude from the North Sea is a proxy for the foreign oil that's imported by U.S. refineries and turned into gasoline and other fuels. Its price has risen 11 percent so far this year, to around $119 a barrel, because of tensions with Iran, a cold snap in Europe and rising demand from developing nations. West Texas Intermediate, used to price oil produced in the U.S., is up 4 percent to around $103 a barrel. That's 19 percent higher than a year earlier.

Higher gas prices could hurt consumer spending and curtail the recent improvement in the U.S. economy.

A 25-cent jump in gasoline prices, if sustained over a year, would cost the economy about $35 billion. That's only 0.2 percent of the total U.S. economy, but economists say it's a meaningful amount, especially at a time when growth is only so-so. The economy grew 2.8 percent in the fourth quarter, a rate considered modest following a recession.

Gas prices are already an issue in the presidential campaign. Republican candidate Newt Gingrich spoke several times this week about opening up more federal land to oil and gas drilling as a path toward U.S. energy independence — and lower pump prices.

"Our goals should be to get gasoline to $2.50 or less so that working families can actually get to work and retired families can travel," Gingrich said at a campaign event in Los Angeles Thursday.

High oil and gas prices now set the stage for even sharper increases at the pump because gas typically rises in March and April.

Every spring, refiners suspend operations to switch the type of gasoline they make. Supplies of wintertime gas are sold off before March, when refineries need to start making a new formula of gasoline that's required in the summer.

That can mean less supply for service stations, resulting in higher gas prices. And summertime gasoline is more expensive to make. The government mandates that it contain less butane and other cheap organic compounds because they contribute to the formation of ground-level ozone, a primary constituent in smog. That means more oil, a costlier component, is needed to produce each gallon.

The Oil Price Information Service predicts that gasoline could peak at $4.25 a gallon by the end of April. That would top the record of $4.11 in July 2008.

The national average for gasoline began the year at $3.28 a gallon. The average price for February so far is $3.49 a gallon. That's up from $3.17 a gallon last February, a record at the time. Back in 2007, before the recession hit, the average for February was $2.25 a gallon.

Prices are higher on the East and West Coasts, where gasoline has risen above $3.70 in Connecticut, New York, Washington D.C. and California. This isn't unusual — states on the coasts charge some of the nation's highest gas taxes.

High gas prices put a strain on many people's budgets.

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Gasoline Prices To Soar Well Above $4 Per Gallon

Gasoline prices will soar "well above" $4 a gallon and possibly higher this summer due to "perverted logic" as rising crude prices force refiners to close their doors, further crimping supply and pushing prices higher, says commodities research analyst and trader Stephen Schork.

Gasoline prices are currently hovering around $3.50 a gallon, higher than they normally are this time of year, according to the AAA Fuel Gauge Report.

In 2008, when gasoline broke records, average prices didn't hit $3.50 a gallon until April 21, which is more than two months away, the Los Angeles Times reports, citing the AAA Fuel Gauge Report data.

Iranian threats to close down the Strait of Hormuz and crimp the world of crude supply is sending global oil prices climbing.


Pricier crude is forcing U.S. refiners to pass on costs to consumers, who balk when prices at the pump approach $3.50.

When consumers buy less, refiners close down due to lack of demand, although those closures erode even more supply from the market, thus sending gasoline prices back up again as part of a vicious cycle.

"You have this kind of perverted logic now," Schork told Moneynews in an exclusive interview. "The refiners cannot make money, because there is no demand for what they are making or the demand is very weak with high gasoline prices. So they are either limiting their capacity or they are shutting in their refineries altogether."

More than "300,000 barrels a day of gasoline production on the East Coast of the United States is currently shut in, it's closed," said Schork, editor of the energy newsletter The Schork Report.

"We are on this hamster wheel where high crude prices from geopolitical fears are driving refiners out of business. Refiners are out of business because demand for gasoline is weak and the fact that refiners are pulling back is driving gasoline prices even higher."

Furthermore, as the spring approaches, seasonal factors push up fuel prices, as more expensive inputs are used in refineries to produce warm-weather blends.

Increased driving in the U.S. also pumps up prices in spring and summer.

"That prices are at all-time highs for this point of the season given where crude oil prices are trading right now, gasoline prices this summer on the East Coast are going to be well above $4 a gallon," Schork says.

In the Rocky Mountains and Great Plains states, ample oil supply is available to keep prices lower, although pipeline capacity is lacking to bring that supply to thirsty East Coast markets.

Operators along one pipeline, run by Canadian firm Enbridge, are working to reverse the flow of the line to carry more oil from the upper reaches of North America further south by June, which may provide some relief, Schork says.

"Now the situation is are we going to be paying records? It's kind of hard to say we're not going to be paying records at this point," Schork says.

Repeat performance

Still, however, the world has seen global oil supply shrink in the past.

Last year, the Arab Spring uprising spread to Libya, and supply fell sharply during the chaos.

And while Iran may beat its chest and threaten the world in the face of sanctions, in the end, the country has to sell its oil in order to keep petrodollars flowing into its economy.

Iran also cannot close the Strait as it has to import gasoline and other derivatives — while Iran is rich in crude, it refines very little.

Adding to that, Europe has said it will embargo Iranian oil and should others follow suit, the only buyers remaining would likely be China and India, which would enjoy the position to dictate prices to Tehran since nobody else would be buying.

Furthermore, any attempt to close the Strait of Hormuz would cut off the shipping lanes used by oil-rich Arab countries, which could launch military campaigns themselves should Iran make good on its threats.

Translation: Iran will back down.

"The likelihood that Iranian barrels go missing is limited," Schork says.

The access to Libyan oil returning to the market, possibly more Canadian oil flowing south and the likelihood that Iran will stand down offers some relief.

Yet consumers shouldn't breathe easy, as if and when Iran determines that isolation and economic disaster is not worth pursuing a nuclear bomb, geopolitical tensions have already pushed up oil enough.

"East Coast refiners are paying upwards of $120 a barrel to get oil into their refineries, and $120 a barrel in the East Coast translates well over $4 or $4.10 or $4.20 for a gallon of regular gasoline this summer," he told Moneynews. "Some market areas will be closer to $5 than $4.

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