Gas prices remain at historic highs for early January, up by double-digits in many part of the country since the beginning of the year. Contributing to the increase was the repeal of the ethanol tax credit, causing gas prices to increase nearly 4.5 cents per gallon.
The national average for regular grade rose 4 cents this week (11 cents since January 1) to $3.39 per gallon Friday. Prices are 13 cents above month ago prices and 29 cents above year ago prices, yet remain 72 cents below the all-time record high of $4.11 set three and a half years ago.
Crude oil is also at the highest level ever to start a new year. The commodity jumped to over $102 per barrel mid-week, the highest price since last May when gas prices peaked at $3.98 per gallon nationally and over $4.00 per gallon in many parts of the country, and a huge increase over last October’s low of $76.29. Increased global demand and optimism over U.S. economic recovery, coupled with a possible shut down of Nigerian oil exports (the top oil producer in Africa and major supplier to the U.S and Europe) and western embargos against Iran that could lead the Middle Eastern nation to block the Strait of Hormuz, supported crude oil’s increases through mid-week. However, late Thursday reports emerged that the European Union would delay its embargo against Iranian oil imports up to six months, sending crude oil down 2.5% to $99.10, the first time the commodity settled below $100 per barrel since December 30. Crude oil closed at $98.70 Friday, a three-week low.
Weekly data from the Energy Information Administration (EIA) showed the nation’s crude oil supplies rose 5 million barrels to 334.6 million barrels, 0.5 percent above year-ago levels. Analysts had expected a drop of 1 million barrels. Gasoline supplies rose by 3.6 million barrels to 223.8 million barrels, 0.3 percent higher than year-ago levels and exceeding analysts’ expectations of a 1.75 million barrel increase. Demand for gasoline over the last four weeks was 4.8 percent lower than the same period a year ago, averaging 8.6 million barrels a day.
“So far this year we’ve seen record-high gas prices supported by record high crude oil prices for early January – not good news for motorists who typically see lower prices in January due to curbed demand during the winter months,” said Martha M. Meade, Manager of Public and Government Affairs for AAA Mid-Atlantic. “Given current market conditions and international tensions, prices at the pump will likely surpass the $4.00 per gallon mark before the weather warms up this spring, well ahead of the annual summer price peak, paving the way for record-breaking gas prices this year.”
Analysts believe, and market indicators support, it will be a tumultuous year for gas prices. Prices will undoubtedly reach higher highs than 2011, and potentially lower lows. Last year’s high was $3.98 in May and the year’s low was $3.07. Looking back to 2008, the national gas average set a record at $4.11 per gallon in July, but many forget that by December the national average dropped to $1.61 per gallon. And when prices surpassed the $4.00 mark in 2008, they lingered there for less than two months. Oil Price Information Service (OPIS) chief analysts Tom Kloza doesn’t anticipate a long spike this year, but believes gas prices will build through the spring before tailing off in the latter part of 2012.
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