A 2007 Redux Could Mean Even Higher Gas Prices

Closing the "Enron loophole" may prevent the fourth quarter rise in gas prices seen in 2007.

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Gregg Laskoski is a senior petroleum analyst for Gasbuddy.com.

It may seem like ancient history to some, but it's probably helpful to remember lessons from 2007. The national average price of gasoline in August '07 hovered at $2.50 per gallon, about a dollar less than where we are now. After Labor Day and from then on—when fuel prices typically decline in the fourth quarter—they rose instead. By the end of 2007 retail gasoline prices had increased about 70 cents per gallon. The statistical anomaly that closed 2007 would be a troubling harbinger of what 2008 would bring.

2007's fourth-quarter price hike had established the extremely high "floor" for prices in 2008. That year when they "sprang forward" like clockwork, the floor was already significantly higher than peak prices seen in previous years. At the same time, the economy was in the early throes of the recession we have today. The spring of 2008 paralleled in many ways what we saw in March and April 2011. An anemic economy, sluggish demand and the long-term weakness of the U.S. dollar propelled a speculators' rally for crude oil. And we know what happened next. [See a collection of political cartoons on gas prices.]

By July 2008 crude oil reached a record high of $147 per barrel and the national average price of gasoline reached an all-time high of $4.11 per gallon on July 17, 2008.  Surpassing the $4-per-gallon threshold for the first time prompted much public discussion from politicians of every stripe who recognized that tighter controls on speculative investors were needed to reduce the adverse effects on gasoline prices and consumers.

Much was said about closing the "Enron loophole," a legal provision requested by that company in 2000 which exempts energy commodities from government oversight; preventing traders of American crude oil from routing transactions through offshore markets to evade American limits, and working with other countries to better regulate the oil futures markets.  

Regrettably, that loophole remains intact today and is recognized as a major obstacle to the Commodity Futures Trading Commission, rendering it unable to fully oversee the oil futures market and probe cases in which excessive speculation may be driving up oil prices. Does Congress have the political will to deliver the necessary remedy? Time will tell. [See who gets the most from the oil industry.] 

What we do know is that today's national average price of gasoline is $3.59 per gallon and history tells us the price of gasoline—almost always—declines in the fourth quarter. But, conventional wisdom failed us before. What do you suppose the price at the pump will be when the fireworks boom on July 4, 2012 if December 2011 closes with an average price reminiscent of December 2007?

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