No increase expected for gasoline prices

Government predictions about the price of crude oil suggest that the cost of gasoline should remain relatively flat this year and increase about 5 percent next year, an economist with the American Petroleum Institute told a meeting of the CEO-CFO Group on Friday.

The forecast was based on crude oil price predictions by U.S. Energy Information Administration. The administration projects that crude will stay around $80 a barrel this year, slightly more than Friday's closing price of $79.66 a barrel price, with regular gasoline going for a national average of $2.70 gallon.

The administration forecasts crude prices will rise to $84 a barrel next year.

John Felmy, chief economist for the American Petroleum Institute, made the observations during a speech to the CEO-CFO Group at Lawry's The Prime Rib.

Antitrust laws prevent Felmy from predicting energy prices, but he said gasoline prices closely correlate to crude prices. So if crude prices are stable, it follows that gasoline prices probably will be as well.

Refiners lost money on gasoline production in the fourth quarter of last year, he said. "It looks like their margins are going to remain about constant."

Retailers mark up gasoline about 10 cents a gallon but must deduct the costs of doing business from that, he said.

The price of gasoline affects the costs of Californians who drive to Las Vegas. It is also a key factor in consumer spending.

"Higher energy costs are a drag on the economy," Felmy said.

The average U.S. household uses 850 gallons of gasoline a year. So if the price increases by $1 a gallon, that's $850 less the family has to spend elsewhere, he said.

"If (gasoline) prices go up, that money doesn't get spent on other things," Felmy said.

On the other hand, the demand for diesel closely tracks changes in gross domestic product. Diesel prices seem to suggest that the nation's GDP is slowing this quarter in comparison to the last three months of 2009, he said.

The possible switch to electric hybrids and plug-in electric vehicles will be slow, based on experience, he said.

From the discovery of oil and its replacement of coal as the No. 1 fuel in the country, 90 years has passed, he said.

"It's going to be decades" before the number of new electric-car sales exceeds those of gasoline-powered vehicles," he said. "We are going to use oil for the foreseeable future.

"So, if we're going to use it, we might as well produce it here."

Contact reporter John G. Edwards at jedwards@reviewjournal.com or 702-383-0420.