Pedal to the metal
The day after crude oil prices dropped more than $2 on the futures market, Jim LoMedico saw the price he pays for gasoline at his Sunoco station in Arlington, Va., creep up another cent per gallon. He'll have to pass the increase along to his customers, but so far, they haven't complained. In fact, he has seen his sales climb as the average pump price has shot up 14 percent in Northern Virginia since January. He thinks people are seeking out his station, which consistently undercuts nearby competition and was selling regular unleaded for $2.09 that day, 2 cents below the national average. "They're price conscious, but they're not buying less gas," he says.
Indeed, nationwide demand for gasoline is up 2.2 percent even though fuel now costs 21 percent more than a year ago. And although there are signs that consumers are beginning to feel the bite--sales of large SUV s are down--the experts say the stage is set for more driving and even higher gas prices this summer.
Below the peak. Doug MacIntyre, senior analyst at the U.S. Energy Information Administration, says that in inflation-adjusted terms, gas prices are still short of the peak reached during the 1981 Iran-Iraq War. The price then was equivalent to $3.09 per gallon today. "We're still well below the price that was enough to shift demand significantly," he says.
AAA spokesman Mantill Williams says that except in areas with mass transit, there are few alternatives to the car. "The automobile remains the only practical way . . . to travel, to commute, and to run daily errands," he says.
Some energy experts talk of an oil price bubble. One day last week, crude prices fell $2.13 to $53.90 per barrel after the government reported gasoline inventories were at their highest level in nearly three years. But some analysts noted that the run-up in oil stocks may be because refineries across the country had to delay processing crude for spring maintenance. Indeed, the market knows well that U.S. refinery capacity is so tight that after a deadly explosion at one of BP's Texas refineries last week, crude prices spiked again.
Because of a lag in crude prices working their way to retailers, customers don't see most of these back-and-forth blips. Instead, they've seen a gradual ascent to today's price summit from the $1.36 per gallon average of 2002 and are not as shocked, of course, as if they'd seen that 55 percent increase overnight. "It's what you get used to," says LoMedico. "If the price were to go down to $1.95 a gallon now, people will think that's great, and say, 'I'll buy that Suburban now.'"
This story appears in the April 4, 2005 print edition of U.S. News & World Report.
advertisement
