Gas Prices: Relief Is Just Around The Corner. Well, Maybe.

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Earlier this year, it looked as if the price of gasoline might cross the $5-a-gallon mark in the U.S. (In some places, it went well beyond that.) Analysts were screaming to the media, giving Cassandra-like interviews about fuel shortages and conflict in the Middle East. Gas-sipping rides became hugely popular, driving the average fuel economy of new cars sold to a record-high 24.1 mpg.

Then, it stopped. The change wasn't dramatic, but in April, gas prices began drifting down from their highs of around $3.90 a gallon. By July, they'd bottomed out at a national average of roughly $3.40. 

Since then, however, prices have soared. Today, Americans are paying an average of $3.86 per gallon -- up two cents from yesterday, 16 cents from a month ago, and 21 cents from a year ago.

What gives?

Unfortunately, two factors have combined to make life difficult for drivers. 

Summer-blend shortages

For starters, we're at the end of of the season for summer blend gasoline. Summer blend debuted in 1995 as a result of amendments to the Clean Air Act. It's created with additives that maintain their integrity in the warmer months, making gas easier and more environmentally friendly to store when the mercury begins to climb. 

Summer blend isn't exorbitantly more expensive to manufacture than winter gasoline. However, before the changeover from winter to summer gas -- which starts in April and is complete by June 1 -- refineries slow production of winter gasoline, meaning that supply gets tighter. That explains, in part, why we saw a price spike in the spring, which relented once stores of winter gas had been used up and summer blend began shipping.

Now, we're on the flip side: refineries have stopped producing summer blend, meaning that supply is more limited than it was a couple of months ago. Complicating matters is the fact that according to federal law, winter-blend gasoline can't be sold before September 15, meaning that we're not likely to see any relief until after this weekend.

Summer storms

So, short supply of summer gas is one problem. The other is a certain hurricane by the name of Isaac -- or, more specifically, analysts' reactions to Isaac.

Isaac was not what most people -- even those of us in its direct path -- would call a major hurricane. True, it caused plenty of damage to homes, farms, and businesses in outlying areas of southeastern Louisiana, but compared to a Katrina or Camille or Betsy, it was a modest meteorological event.

But that's not how analysts saw it. Analysts saw oil extraction in the Gulf of Mexico dry up; they saw refineries along the coast shut down; they saw gas production and distribution disrupted. To them, that spelled "shortage", and in financial markets, "shortage" means "price hike".

In other words, Americans have found themselves at the center of a perfect storm, buffeted by short supplies of summer-blend gasoline, which have been exacerbated by Hurricane Isaac.

When will it end?

Hurricane Isaac is long gone. Most oil rigs in the Gulf of Mexico have resumed pumping operations, and refineries have opened their doors again. 

Even better, as of Saturday, retailers can begin selling winter blend gasoline (formerly known as just "gasoline"). That means that gas stations across the country will have much more flexibility in what they stock and sell to customers.

Add those two together, and you should have a much freer flow of gasoline and much calmer analysts, which should precipitate a price drop over the next few weeks. 

Don't get too comfortable, though. The North Atlantic hurricane season doesn't end until November 30, so another storm system could come along to hobble oil extraction and gasoline production. Or Iran could go off its meds and start threatening to shut down the Strait of Hormuz again. And of course, spring will be here before you know it, causing another spike in gas prices. 

Enjoy it while you can.

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Comments (17)
  1. Queue the EV owners/commenters that don't have to buy gasoline :)

  2. Dammit John, I had to buy gas for the Prius today. I had to go 60 miles round trip and the Leaf wasn't fully charged.

    Hey, wait a minute, you aren't making fun of us EVers are you?

  3. I wouldn't dream of making fun of Evers. [goes all smug] However I have been cycling to work so don't need to concern myself with the cost of gasoline or electricity [end of smug] At least until I need a show at the end of my ride.

  4. ok I'll bite. Solar+EV=IDon'tGiveARatzAzzAboutGasPrices...

  5. It affects the economy that you're part of. Unless you're single off the grid in the cabin somewhere growing your own food, you need to care.

  6. **Cue not Queue, dang it.

  7. Georgia Power is switching over to winter rates in October... $404 for electricity is not fun - gas was cheaper...

  8. At those prices for electricity your ROI on solar is only a year or two.

  9. It's only in the summer though and where will I get $30K from? I'm maxxed out, man...

  10. Check out SolarCity.

    They have a "leasing" program where you basically pay for the power Solar panels generated through monthly plan. It basically pays for the itself...

  11. We're a "little" behind in the Dixieland. Not an option here. You have to shell out 100%.

  12. I used to live within the Georgia Power "service" area (Atlanta and then Marietta). I don't remember the Georiga Power bill being that expensive...

    Is Solar City NOT available in your area or they don't offer leasing?

  13. But why are markets so jittery about even the slightest chance of a somewhat diminished oil/gasoline production these days? Maybe these price movements are somewhat artificially induced because the more volatile prices, the more money speculators make but maybe also because the market realizes there is no real back up;oil production is pretty much maxed out, AKA peak oil. With global oil production maxed out and demand in China and India and a host of other developing countries only just getting started it's rather naive to believe there might be any serious relief just around the corner. This will only get worse.

  14. this is a good thing.
    The more expensive the gas is, the more likely people will drive more efficient vehicles. Hybrid and EV will finally have a chance to dominate.

  15. With my Volt I can absorb $50 per gallon but after that it would start to hurt....


  16. At $50/gallon I think we have other things to worry... Economy will collapse. Food and basic material price will skyrocket, social unrest, hyper inflation and hyper high unemployment...etc

  17. According to a recent Reuters article, a market distribution infrastructure for hydrogen has existed since the late 40's, in Germany; mixed with "natural" gas, it heats buildings. Profits from that exist to expand that toward H2 fueling of automotive fuel cells. That expansion is now in progress.

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