Experiencing Gas Pains? Just You Wait
(MONEY Magazine) – Designer jeans everywhere. Earth, Wind & Fire on tour again. Starsky and Hutch back in action. And we're still not done with the never-ending '70s revival. Consider the price of gas, up 15% in the past nine months, to well over $2 a gallon in some states. There's even speculation that $5-a-gallon gas isn't far away.
What's going on here? Crude-oil prices (the No. 1 factor in gas prices) have soared amid a perfect storm of OPEC production cuts, rising global demand (particularly from China) and a domestic supply gap fueled by strikes in Venezuela. And spikes in crude trigger panic among gas retailers, who assume a pending supply shortage and immediately hike their prices. Most analysts don't see the price of crude staying this high for long; many expect it to fall from today's $36 a barrel to $30 by year's end.
Still, you won't see pump prices deflate dramatically any time soon--and certainly not until after the summer driving season. Why? Gas retailers may panic quickly, but their anxiety dissipates slowly. "That's the rub," says Bill Veno of Cambridge Energy Research Associates.
Even if gas prices settle, don't expect a return to the buck-a-gallon days. Saudi Arabia retains its grip on the oil market. And explosive growth in developing countries, plus instability in many oil regions, almost guarantees future disruptions in crude's supply/demand equation.
So what's an American car driver to do? You could swap your SUV for a more fuel-efficient hybrid. Or reclaim some of your gas costs by investing in a dividend-rich oil stock like ChevronTexaco (see page 64). Or simply ponder the bright side: Even at $1.76 a gallon (the U.S. average on March 22), gas still costs less, in inflation-adjusted terms, than it did when the '70s oil crisis peaked in 1981. Back then, it would've cost $59.80 (in today's dollars) to fill up your basic 20-gallon guzzler, whereas it costs $35.20 to fill the same tank today. Two decades ago, the average U.S. household spent 5% of its income on energy; now it spends just 2.5%.
If all else fails, think about this: Better a rise in gas prices than a return to the '70s-style handlebar mustache. --CYBELE WEISSER