How High Can Gas Go?
Trying To Figure Out How High Gas Prices Could Go
There have been days when I go to the gas station and it feels like the prices at the gas pump are going up as you watch. Gas prices have increased 25% in just the last four months, with no sign of stopping any time soon. In the last 5 years the average price of a gallon of gas has more than quadrupled. The gas prices may have gone through the roof but most people have not seen their pay do the same, which has probably left you wondering how high gas prices are likely to rise, and whether or not you will be able to keep your head above water.
The price of gas is affected by a number of different things but at the level of the gas station, gas prices are set by cost of replacement. Basically, gas has to be priced according to how much it will cost the gas station to replace it, rather than how much it cost to buy it. This means you have to pay for the fear of prices rising later. The rising price of crude oil is another factor that has caused gas prices to rise. This attributed to increased demand for oil from the fast developing manufacturing nations like China and the actions of some investors, who have started bidding the price of a barrel of oil ever higher, resulting the very high gas prices we find at the pump.
This can work together with the cost of replacement, since when costs go up, speculators begin buying more in anticipation of higher profits and major users of oil and gas buy ahead of time which all helps prices to rise, resulting in a vicious cycle of ever rising prices. This has all been compounded by the weakening US dollar. When our currency gets weak against other countries, where we get much of our oil, the oil companies begin to charge more for gas. This, again, is another example of a vicious circle pushing prices up, since rising gas prices negatively affect the economy, which drives the dollar down and, well, you get the idea.
So how high are gas prices going to go? Investment firm Goldman Sachs, one of the world leaders in finance, anticipates that crude oil will rise another 25 dollars per barrel. Usually a dollar increase in a barrel will result in a rise in gas price at about 2 cents per gallon. If Goldman Sachs is correct, then you are looking at another 50 to 60 cents increase in the price of a gallon of gas. For most of use, that means gas prices of upwards of 4.00 dollars a gallon. The upshot is that gas prices are expected to drop in the fall, although you should not go expecting to see them below 3.00 dollars any time soon. Better keep tightening those belts and pushing to get better fuel economy.
It may be that the slowing world economy may reduce demand for oil and help prices go down but who knows what prices they will go down too. We have probably seen the last of the cheap oil and gas supplies.
