Don't expect $4 gas anytime soon
Gasoline prices have been on the rise of late but demand remains sluggish. Industry sources don't anticipate a return to record highs.
NEW YORK (CNNMoney.com) -- Gasoline prices have surged some 10% over the past week but don't expect the $4-a-gallon record highs of last summer anytime soon.
The national average for a gallon of gasoline has jumped nearly 16 cents this week to $1.782 a gallon, according to motorist group AAA's daily survey. But current prices are still more than 56% cheaper than last summer, when they topped out at $4.114 a gallon.
The economic slowdown pushed drivers to close their wallets during the summer driving season and find other modes of transport. That shift hasn't changed much as the country remains mired in a recession.
"Demand is still lousy and I think it is going to be lousy for the next four, five or six weeks and that is traditional for this time of year and that will be exacerbated by the job losses," said Tom Kloza, chief oil analyst at the Oil Price Information Service.
On Friday, the Labor Department announced job losses of 524,000 for December. While that was roughly in line with estimates, the annual loss of 2.6 million is the highest level in more than six decades.
"Every aspect of the demand is macroeconomic and if the economy is losing jobs and consumer confidence is very, very low, it does not bode well for the price of oil or the price of refined products, including gasoline," said Kloza
Drivers ought to expect retail gas prices continue to move a bit higher in the very near term but not make any major movements through the next couple months, he added.
The oil factor. Gas prices typically follow the trajectory of oil, the main ingredient in gasoline. Crude prices surged some 43% from their low on Dec. 19 through Jan. 6, when they began their retreat.
"You have a gyrating price of crude oil, which is always the main influence in the price of gasoline," said Bob Tippee, editor in chief of Oil and Gas Journal, an industry publication.
While gas moves in the same direction as crude, there is a lag as the product moves through the wholesale market - the price paid by big energy suppliers, noted Kloza.
Those prices have rallied some 40 cents to 50 cents a gallon between Dec. 24 and Jan. 5, said Kloza, and that is part of what is pushing gasoline prices higher at the pump now.
Watching retail gasoline prices on the street is "like watching the Olympics on tape delay," he said.
Crude prices, meanwhile, peaked at over $147 a barrel in July, but have fallen sharply off as the economy has continued to be battered. "We have a fundamentally very different market than we did when gas was $4 a gallon," said Tippee.
The oil market was pushed up to such extraordinary records by a flood of investors looking to move their cash into commodities as a safe haven from stock market volatility. Furthermore, the U.S. dollar was very weak in the summer months, and that also worked to support the price of oil, and by extension, gasoline prices.