Where gas prices are headed this summer -- and beyond

Cash coming out of a gas pump nozzle

Will gasoline ever cost less than $3 a gallon again?

Without fail, this is the most popular question asked by the students in my college economic class each and every semester.

So many of life's most critical decisions, including where we choose to live and work, depend on how costly we think it will be to get there.

And, of course, how much we expect fuel to cost plays a big role in deciding what car or truck to buy.

It makes a lot more sense to buy a brawny SUV or pickup that barely gets 20 miles per gallon if you think gas is going to cost $3 a gallon than if you think it's going to cost $8 a gallon.

Where we expect gas prices to go over the next three or four years can even help us decide whether to go with a traditionally powered compact sedan that gets 25 mpg in city driving or to spring for the pricier hybrid version that gets closer to 40 mpg tooling around town.

So what's the answer? What can we say about the future of gas prices?

According to AAA's daily tracking, the average cost of a gallon of unleaded regular is $3.66, almost exactly what it was this time last year.

But that comparison masks how incredibly volatile gas prices have been during that time.

Although the national average topped out at $3.85 a gallon, not reaching the record $4.14 a gallon set in 2008, many parts of the country have seen prices much higher than that.

Right now, for example, you'll pay at least $4.25 a gallon for regular unleaded anywhere in the Chicago area.

We're told that prolonged refinery maintenance and outages in Illinois, Indiana, Oklahoma and Kansas are pushing prices up about 43 cents a gallon across the Midwest.

And last October, gas prices topped $5 a gallon in California because of refinery and pipeline problems.

So, I think that's the first thing we can say about gas prices — we're going to see a lot of swings in prices, so we need to be prepared for a range of prices.

And what might that range be?

The petroleum industry says the high prices we're paying today provide our profit-loving oil companies lots of incentive to innovate and, dare I say it, "Drill baby drill!"

As a result, you hear news reports like this one from American Public Media's Marketplace:

“The International Energy Agency says the oilfields of North Dakota are turning the global oil market on its head. Canada's oil sands, too, to be fair.”

"The agency's latest report on world oil supplies says North America's oil boom is turning out to be even bigger than predicted. Within five years, the U.S. and Canada will be meeting most of the world's new oil demand.”

Initial supply-and-demand analysis would lead us to believe that prices would fall due to an increase in supply that has North America on its way to overtake Russia as the world's second-largest oil producer.

But the growing demand for oil in other parts of the world — think China here — means this increase in supply will simply keep us from seeing $6- to $8-a-gallon gas.

There's also no reason to expect that everything from hurricanes and fires to normal maintenance won't continue to disrupt the process of refining crude oil to gasoline.

Fun fuel sipping cars

Sure hybrid and diesel-powered cars get great mileage, but they cost more to buy. A lot more in many cases. That's why we think a traditional front-wheel-drive compact or subcompact with an efficient four-cylinder engine is a better gas-saving alternative for many buyers. Our six favorite fuel-sippers for 2013 get more than 30 miles per gallon in combined city and highway driving yet cost no more than $20,020.

The one thing we won't see the oil industry do is build new refineries in the United States. In fact, it's shutting down smaller and older refineries across the country.

That's because of a major trend that hasn't really registered with most of us yet: We're using less gasoline.

Motor fuel consumption peaked at 142 billion gallons in 2007, according to the U.S. Energy Information Administration, and has fallen every year since, reaching 134 billion gallons in 2012, down 6% from the record year.

Three factors are driving that decline — we're driving fewer miles, there are fewer vehicles on the road, and our fleet of cars and trucks is getting better and better gas mileage.

Indeed, research by CNW Marketing Research shows that nearly one in every 10 American households don't even have a car.

Whether that's by choice or economic necessity, we now have nearly twice as many carless households as in the early '90s.

Although we may drive more and the number of vehicles may grow as the economy improves, most projections show gas consumption will continue to decline.

So here's my best guess for gas prices over the next three to five years, based on the industry studies and projections I've seen.

Will we ever see gas cost less than $3 a gallon again?

No. Never.

Prudent money managers will budget, and buy their cars and trucks, expecting to pay $3 to $6 a gallon.

Depending on where you live, $3.50 to $4.50 a gallon will be the norm, with natural disasters and refinery accidents pushing unleaded premium well over $5 a gallon in major coastal and Midwest cities for a month or two at a time.

One final caveat.

If there's ever a serious bomb-trading blowup between Iran and Israel or the U.S., all bets are off.

Jill Beccaris-Pescatore is an assistant professor of economics at Montgomery County Community College in Blue Bell, Pa.

Leave a Reply

Your email address will not be published. Required fields are marked *