Do I Hear $5?

April 18, 2008

I saw my first $4+ price at the gasoline pump today. Just regular, not the high octane, and it was in a full-service line. I can think of no reason why the rise should end there. Sooner or later, higher crude oil costs are going to trickle down to gasoline. Crude oil prices have risen at an accelerating pace, and we see this by looking at the trend on on-year crude oil price inflation. Recent changes in calendar year average prices amounted to 34.0% in 2004, 37.0% in 2005, 16.9% in 2006 and 9.2% last year. But then look at the 12-month advances in the months so far this year: 69.3% in January, 60.4% in February, 73.6% in March and 71.4% so far in April. The average price so far in 2008, $99.86 per barrel, shows a 12-month rise of 68.9%, and today’s record high of $116.97 was 85.3% greater than the cost of crude oil on April 18, 2007. Gasoline prices have not climbed nearly as rapidly as crude oil, meaning that even if crude stopped climbing, pent-up pressure for higher gasoline would remain.

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