Drivers should expect higher prices at the gas pump this summer, due to an increased demand for gas and current conditions in the Middle East.
Already prices are about 20 percent higher than in the past month, and they could increase even more, experts say, though they stress this will not become a long-term issue.
“Refining capacity is still quite limited in the U.S., so I am sure we will see gas prices rise with the high demand for refined gasoline that comes with the summer driving season,” Business School Prof. Richard Sloan said, noting “most consumers expect this”, yet oil prices could easily come due in the near future.
“Yes, this is the highest price increase in a six to eight week period in a number of years,” John Schmitz, head of equity strategy at Fifth Third Bank in Cincinnati, said. “But on a real basis with adjusted prices, oil is actually cheaper now than it was 30 years ago and gas hasn’t gone up at all.”
Schmitz said an annual increase in gas demand during summer months is typical and this year’s increases should be usual, despite an Iraqi oil embargo and a recent decline in Venezuelan exports.
Prices for crude oil soared Monday when Saddam Hussein announced Iraq would cut off its exports for 30 days or until Israel withdraws from Palestinian territories.
Iraq, a member of the Organization of Petroleum Exporting Countries, produces 2.3 million barrels of oil a day and exports 1.8 million barrels a day, primarily to Europe and the U.S. Meanwhile, exports from Venezuela have shored up due to a strike. But the oil market has calmed in the past two days as Saudi Arabia, the world’s largest exporter of oil, has promised it will not allow for a shortage.
As for the effect on the current economic recovery, both Schmitz and Sloan downplayed the possible consequences.
“Will it derail the economy? No, because there are many other factors at play, including the eleven cuts in interest rates,” Schmitz said. “Gas is a small part of a consumer’s expense profile.”
But Sloan did note that if oil prices continue to rise in the future, “this would hurt economic recovery.”
As for the return of last year’s energy crisis, Schmitz said he does not believe this will happen, although “politically, it will always surface from time to time.”
Students said they are taking the price increases in stride.
“It’s annoying, but I’ve gotten used to it,” LSA senior Kerry Weisenfeld said, referring to seasonal increases over the last several years.
“If you have to drive somewhere, there’s not much you can really do but pay the prices. I’m not going to change my driving habits, though, because a gallon is 10 cents more.”