AAA: Gas prices highest ever to start a new year

Average U.S. gasoline prices began 2012 just under $3.28 gal, the highest number ever to mark the beginning of a year and the fifth straight weekly increase in price.

Last year’s $3.07 per gallon high is now relegated to second place.  The U.S. average price for regular self-service gasoline was $3.51 in 2011, the highest annual number of all time, and more than twice the price average seen in the first four years of the century.  The national average for regular grade rose 8 cents this week to $3.35 per gallon Friday.  Prices are 6 cents below month ago prices and 27 cents above year ago prices, yet remain 76 cents below the all-time record high of $4.11 set in July 2008.

Crude oil began the new year above the $100 per barrel mark, lifted by tensions in the Persian Gulf as Iran threatens to shut down the Strait of Hormuz following economic sanctions against the country by the U.S. and other western nations.  Any disruption to this key transit point would have a major impact on global oil markets, pushing prices sharply higher.  While pipeline alternatives exist, they do not have the capacity to compensate for the loss of 16 to 17 million barrels per day (bpd) of crude oil that travels through the strait.

After trading as high as $103 per barrel mid-week, crude oil prices slumped below $102 a barrel Thursday as a stronger U.S. dollar and worries over weak U.S. oil demand eclipsed concerns over the potential disruption to Iran’s oil supplies.  Weekly data from the Energy Information Administration (EIA) noted demand for gasoline, the most widely used petroleum product, was at a 13-year low for the last week of the year, and was 3.4% below a year ago when 30 percent of motorists couldn’t travel on the roads that were covered by 25 to 35 inches of snow.  Despite ups and downs during the shortened trade week, crude oil remained above the $100 per gallon mark to close at $101.56 Friday.

In addition to weekly demand figures, the EIA also reported crude oil inventories rose 2.2 million barrels to 329.7 million barrels, against expectations for a 900,000 barrel drop. The EIA also noted gasoline stocks rose 2.5 million barrels to 220.2 million barrels.

“One week into the new year and we’ve picked up right where we left off in 2011 in terms of gasoline and crude oil prices – when crude oil prices rise, gasoline prices follow suit,” said Martha M. Meade, Manager of Public and Government Affairs for AAA Mid-Atlantic.  “And such is the case as gas prices continue to rise for the fifth consecutive week on the heels of rising crude oil prices, atypical of seasonal trends.  Analysts and motorists alike are certain to keep watch of both well into 2012, as many industry experts say we are likely to see gas prices break through the $4.00 per gallon mark by spring and ultimately set new record highs should this trend continue.”

When looking at broad supply and demand trends, and the flow of imports and exports once the spring switch to summer blends is accomplished, many speculate that gasoline supplies will tend to be in surplus, rather than scarce for the last seven or so months of 2012.  After a spring and summer of potential record-high gas prices, there is an excellent chance that parts of the country will see sub-$3 gallon gasoline in the second half of 2012.  However, any unforeseen natural disaster or international political issue(s), such as increased tension in the Middle East would ultimately send gas prices higher.


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