Relief from $3 gasoline unlikely

As local drivers crumple the last pages of their 2007 calendars, they can remember the year for its threes. Three-dollar-a-gallon gasoline arrived and stayed; crude oil prices flirted with three digits, nearing $100.

Those gasoline-station-sign threes are likely to stay. And while crude prices may hit three figures, they aren't expected to stay there long.

Even if oil prices hang between $85 and $90 a barrel, a level market watchers call likely, gasoline prices may drift toward $3.50 when they spike for peak demand.

"Oil experts are saying 2008 will be as bad if not worse than 2007 for consumers," said Michael Geeser, a AAA spokesman. "If you play that out, we can look for a time during the year when prices rise, the spring and summer and mid-fall, where we may see prices rise more than they did in 2007."

Still, local gasoline prices ended 2007 heading downward. AAA's Daily Fuel Gauge report pegged the price of a gallon in Las Vegas on unleaded self-serve gasoline at $3.065 Monday, down from $3.071 Sunday and $3.155 a month ago.

On Dec. 31, 2006, gasoline prices averaged $2.553 locally, putting the year's increase at 20.1 percent.

AAA said the national average price was $3.046 Monday, 30.1 percent higher from the $2.326 recorded a year ago. Overall in 2007, The Associated Press reports, pump prices averaged $2.79 a gallon in 2007, compared with $2.57 a gallon in 2006, a gain of 8.6 percent.

Prices peaked both locally and nationally right before Memorial Day, the traditional start of the summer driving season, AAA said.

Las Vegas hit its high, $3.209, on May 29; the national high, $3.272 came May 27.

If you're dreaming of long-term sub-$3 gasoline, you may have to keep dreaming. Michael Darda, chief economist at MKM Partners in Greenwich, Conn., said the only thing that could drop national gasoline prices so much would be a recession or a major pullback in crude inventories.

"Neither of (them) is on my economic radar," he said.

He foresees $3.50 a gallon.

Tom Kloza, the Oil Price Information Service's chief oil analyst, saw Darda's $3.50 and raised the possible price range's outer edge to $3.75. This range will stay, he said, even if crude oil, which gets refined into gasoline, falls to $85 to $90 per barrel and never touches $100.

Light, sweet crude for February delivery fell 2 cents to settle at $95.98 a barrel Monday on the New York Mercantile Exchange. They hit a trading record of $99.29 on Nov. 21.

Nevada Petroleum Marketers Association executive director Peter Krueger said he sees oil prices, and gasoline prices, staying static for now although major events could cause wild price swings.

If the United States catches Osama bin Laden, for example, he said, gasoline prices could drop sharply, well below $3 per gallon, no recession necessary. If political unrest in the Middle East continues to escalate, Krueger said, gasoline could head toward $3.50.

Krueger said he thought domestic politics, particularly the race for president, could keep energy prices from hitting extremes.

"I think we'll keep rocking along where we are until November," Krueger said.

Geeser thought gasoline prices could fall below $3 briefly in the next few weeks but will likely start rising again at the end of January. From then until March, he said, California refineries, which supply the state's gasoline, shut down for maintenance and to start formulating summer gasoline blends. The shutdown often boosts prices, he said.

Geeser noted that the refinery shutdown, and corresponding price rise, came earlier than usual in 2007, during January instead of after it.

If the national gasoline price hits $3.50 per gallon, as Kloza predicts, it would mark a 9 percent rise from the May peak. However, Kloza said he doesn't think that price level, or higher ones, will be sustainable. Consumers wouldn't tolerate it, he said; they'd buy less gasoline and drive less.

"I don't see this as the new normal or a steppingstone to four dollars," he said.

Once the price reaches $3.50 or higher, "you'll hear the screams. There will be wailing and gnashing of teeth."

Kloza said the sheer rise in overall gasoline spending this decade suggests gasoline prices would have a hard time staying consistently higher than $3.50.

Americans are on track to spend $400 billion on gasoline in 2007, Kloza said; spending could go as high as $440 billion or $450 billion in 2008.

In 2002, Kloza said, drivers spent around $200 billion.

"It's wrong to assume that you can take something as robust as the U.S. economy and add $250 billion to it and have it keep going up and up and up without creating a golden goose scenario," Kloza said. "It seems that goose would be plucked a little."

Contact reporter Matthew Crowley at mcrowley@reviewjournal.com or (702) 383-0304.