The recipe for record US gasoline prices goes like this: Take a
tight oil supply and growing world demand. Add a falling dollar and
lots of investment money flowing into oil and other commodities.
Finish with market turbulence caused by the annual switch from
winter to summer gasoline blends. The result: an average US retail
price for regular of more than $3.60 a gallon.
Will gasoline stay that high? At least through the summer, say
experts. At the margin, pump prices may now depend on currency
fluctuations and financial speculators as much as on traditional
"The old fundamentals - the balance between demand and supply -
still matter, but it is these new factors that are the driving force
behind the record high," concludes a recent analysis by Cambridge
Energy Research Associates.
On international markets, the price of a benchmark barrel of oil
has retreated a bit in recent days. But the recent state of the
market can be seen in the fact that on May 1 Exxon Mobil Corp.
reported first quarter net income of $10.89 billion - its highest
Average US retail gas prices have risen for five weeks in a row,
according to the Energy Information Administration's latest
available figures. At $3.60 per gallon, the average price of a
gallon of regular has now spiked 21.4 cents since April 14.
Looking back a bit further, gas prices have climbed over $1.40 a
gallon in 18 months. Sure, China and India are getting richer and
their citizens are using more petroleum. But has everyone in
Guangzhou purchased a Cadillac Escalade since, say, March?
"The market has gone [so high] for a variety of reasons, some of
which are fundamental, and some of which are speculative," says Amy
Myers Jaffe, a fellow in energy studies at the James A. Baker III
Institute for Public Policy at Rice University.
Perhaps the most fundamental of the fundamentals is supply -
specifically, a flattening in the growth of available oil reserves.
Throughout the 1980s and 1990s, increases in demand for petroleum
products were quickly counterbalanced by the appearance of new
sources of supply, say experts.
That pace since has slowed. New fields are still being
discovered, in Brazil and other places around the globe, but it
takes a long time to make them operational. Meanwhile, the end of
the era of cheap and easy oil extraction may be coming.
"Since 2000, we have hit a more mature period in terms of supply.
At the same time, we've had the demand shock come into play," says
David Pumphrey, deputy director of the energy and national security
program at the Center for Strategic and International Studies.
Global economic expansion has resulted in a world demand for oil
that has been rising steadily - and has proved remarkably resilient
in the face of high prices. …