Gas Prices May Drop in Short Term, But Will Likely Stay High

By:  Bob Adelmann
Gas Prices May Drop in Short Term, But Will Likely Stay High

The price of gasoline, according to the Energy Information Administration, may fall in the near future, but will likely rise again and continue to stay high for a number of reasons.

Noting that gasoline prices have risen by 45 cents per gallon since the first of the year, the U.S. Energy Information Administration (EIA) reiterated various causes of the rise in prices (currently $3.75 per gallon at the pump nationwide), such as planned (and unplanned) refinery maintenance that took much refining capacity offline, political concerns emanating from the Middle East, and changes in the demand for refined product globally. However, due to completion of refinery maintenance and additional overseas oil shipments on their way, EIA said it’s seeing signs of easing in those prices in the near future. As a cautionary note, EIA mentioned, any increase in supply or capacity may be offset by higher prices for summer gasoline blends and increased seasonal consumption come springtime.

EIA also elaborated on another cause of rising prices: an increase in something called “gasoline crack spreads” — the difference between the price of crude oil and the price of the products extracted from it including gasoline, aviation fuel, heating oil, and kerosene. The pressure on spreads late last year resulting from the price of gasoline hitting its lowest price in December couldn't be sustained, according to the EIA, and had to come back to more normal levels. At one point, the price of gas at the pump was below the price of crude oil itself, setting in motion the rebound in those spreads and resulting in higher gasoline prices. The EIA wrote:

Throughout much of November and December 2012, gasoline crack spreads were very low, and in some cases negative (a barrel of gasoline worth LESS than a barrel of Brent crude). As a result, retail gasoline prices were lower than one would typically expect given prevailing crude oil prices, with the lowest price of 2012 reached in EIA's weekly survey on December 17.

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