Here comes $100 oil, and $3 gas
With crude setting new highs every day, experts say there's no way motorists won't see a spike at the pump.
NEW YORK (CNNMoney.com) -- With oil prices setting records over $90 a barrel - and $100 looking ever more likely - experts say there's a good chance drivers will see $3 gasoline before the end of the year.
"Three dollar gasoline in this market is unavoidable," said Stephen Schork, publisher of the industry newsletter the Schork Report. "At this rate, we're going to see $4 a gallon."
Crude oil prices have soared nearly 30 percent over the last month, mainly over fears that supply won't meet demand, a falling U.S. dollar, and what some say is a high degree of speculative investment money.
But so far drivers have been lucky. The national average price for gasoline has risen barely one cent, going from $2.81 last month to $2.82 this month, according to the motorist organization AAA, although in many areas of the country gasoline is already over $3.
Analysts have said the relatively stable gasoline price is due to slack demand following the high-demand summer driving season.
But the relatively cheap gas prices are causing profit margins to slip for refiners, who have to pay top dollar for crude but aren't passing along the extra costs for consumers, yet.
"That doesn't seem sustainable," said Kevin Norrish, a commodities analyst at Barclays in London.
Norrish said it's likely refiners will scale back gas production, just as the higher demand holidays approach.
"At some point, it has to happen," he said.
Schork also said a lack of refining capacity means U.S. refiners will struggle to produce both gasoline and heating oil, so the country will end up importing more gas during the holidays. And he noted that importing gas with a weak U.S. dollar is an expensive proposition.
"We could easily see $3 by the end of the year," he said.
Not all analysts agree.
Nauman Barakat, an energy trader at Macquarie Futures, the trading arm of Macquarie investment bank, said gasoline prices near $3 a gallon have kept demand down.
The Energy Information Administration says gasoline demand has been about flat for the last few months, whereas it usually grows by about 1.5 percent a year.
"We're not going to see a similar increase in gas prices," said Barakat. "But if [oil] prices stay at these numbers, then of course it will be a different story come spring."
And therein lies the catch. All the analysts in this story expect crude to hit $100 a barrel.
"It's a matter of when, not if," said Norrish.
Norrish said it was fundamentals, not speculative investment money, driving oil prices - strong demand, falling inventories, no production increases from OPEC.
"The underlying market balance will continue to tighten, and if the geopolitical situation worsens, we'll get to $100 very quickly," he said.
Barakat said there are now more traders betting oil will rise to $100 than there were betting it would cross $90 back when crude was still in the $80s.
And Schork noted the sheer amount of oil contracts trading, and the fact that OPEC tried to cool prices back in September with a production increase, did nothing but send prices higher.