It’s time to open up those wallets, folks.
Gas prices are high, and they’re going to stay high, experts say.
Gas prices at the pump continue to rise and have now increased for 32 consecutive days – from a national average of $3.38 on Jan. 26 to $3.70 this week. Monday’s price is 13 cents more expensive than one week ago, 29 cents more expensive than one month ago, and 35 cents more expensive than one year ago.
According to AAA, motorists in three states currently pay an average of more than $4 per gallon: Hawaii - $4.32, California - $4.29 and Alaska - $4.09. Only two states pay less than $3.20: Wyoming - $3.12 and Colorado - $3.14.
Prices in Middle Tennessee fall between the two ranges at about $3.60 per gallon of regular grade gasoline.
The price of West Texas Intermediate crude oil settled at $108.70 Monday, which is slightly lower than last week, but not low enough to make a difference.
“Recent weeks have seen crude prices surge higher on geopolitical tension with Iran, signs of economic improvement in the U.S., and signs of progress toward addressing European sovereign debt concerns,” said Avery Ash, manager of federal relations with AAA, in an AAA Fuel Gauge Report Overview.
Ash explained how crude oil futures – oil prices that are determined based on future supply and demand – are priced in U.S. dollars.
“As the dollar strengthens relative to currencies abroad, the price of oil becomes more expensive for those holding foreign currencies. Oil futures become a less attractive investment, which exerts downward pressure on prices, as was the case (Monday),” Ash continues.
Despite only four trading days due to the Presidents’ Day holiday, last week’s increase in crude prices was the third largest since the start of 2009 and the largest since the first week of March 2011, when prices surged above $100 per barrel for the first time since 2008, according to Ash’s report. The price increase last March was driven by violence in Libya, as rebel forces clashed with those loyal to then-leader Muammar Qaddafi, and concerns persisted that this unrest would spread to other countries in the region.
“The recent price increase again has roots in unrest the Middle East and North Africa – current escalating tension with Iran and continuing violence in Syria – but has also been a result of positive economic reports in the U.S. and signs that the EU may be taking the necessary steps to address that region’s sovereign debt issues,” Ash said.
An improving economy overseas would be expected to consumer more oil, which exerts upward pressure on prices, explains Nancy White, director of AAA public relations.
“At the same time, when economies strength overseas, the U.S. dollar weakens, and the price of oil (traded in dollars) becomes relatively less expensive. Oil futures subsequently become a more attractive investment, which exerts upward pressure on prices, as was the case (recently),” she said.
Adding to concern by some traders that crude and wholesale gasoline prices may again be overbought is the continuing demand destruction evident in the market, Ash stated in a AAA Fuel Gauge Report Overview on Monday.
“While weekly Department of Energy numbers last week may have appeared to show a slight rebound and a new high for 2012 at 8.628 million barrels of gasoline consumed per day, this number was still some 500,000 barrels below consumption for the same week in 2011, and a look at the more telling 4-week average shows a more than 6 percent year-over-year decline,” Ash said.
Despite these now weekly reports of anemic demand, gas prices at the pump continue to rise and have now increased for more than a month straight.
Jessica Brady, a spokeswoman for AAA, also attributed the rise in gas prices to refinery closures.
“This is the time of year when refineries shut down to switch from winter-blend fuel to summer-blend fuel,” she said.
Winter-blend fuel is less costly for refineries to produce because it lacks the costly additives that are necessary for the high temperatures and summer-blend fuel.
As for the future of gas prices, Brady said, “At this point, it does look like prices are going to continue to increase well into spring. There doesn’t seem to be any real release in sight, at this point.”