Bad news for drivers: gas prices this summer are expected to be more than 10% higher than last summer and may exceed $3 per gal. in some parts of the U.S., the Energy Department estimates. Here’s a look at why:
What’s fueling the price rise? Growing global demand and investors spooked by political tensions in the Middle East have pushed crude-oil prices up. Gasoline production in the U.S. is down 9% compared with 2005, as hurricane-damaged refineries struggle to return to full production. Finally, changes in energy laws are prompting fuel suppliers to use corn-based ethanol as an additive to help gas burn more cleanly, instead of the additive MBTE, which has health risks. But ethanol supply problems have raised gas prices.
Isn’t $3 per gal. a lot? Yes–and prices may approach the all-time inflation-adjusted high of $3.12 per gal., set in 1981.
Do higher prices help anyone? Oil companies are tallying record-high profits. Their execs are cashing in too. ExxonMobil disclosed last week that Lee Raymond, who retired as its CEO in January, earned $69.7 million–$190,000 a day–in 2005.
Are people cutting back on driving? Apparently not. The Energy Department predicts U.S. motorists’ total gasoline usage this summer will be 1.5% higher than in 2005 because of a growing economy and more cars on the road.
What might push prices down? Prices could drop as refineries recover. A resolution to the nuclear-research standoff with oil-producing Iran would calm nervous markets, as would stability in Nigeria, a major oil supplier whose production has been hit by strikes and political unrest.