$4 Gas? Fat Chance

With gasoline prices surging in 2007, U.S. motorists have cast a nervous eye toward gas station signs. Headlines about the specter of $4-a-gallon gasoline bedevil commuters and vacation planners, and fears of an inflationary ripple effect linger. Many have worried that pump prices could surpass the record average of $3.06 a gallon in September, 2005, right after Hurricanes Rita and Katrina decimated the Gulf Coast.

…The main culprit in the price surge is lack of supply. Refinery utilization–which measures how much capacity gasoline refineries are using–fell to 87.8% from 90.4% the week before. Refiners typically report production upswings in the spring as they finish routine maintenance before the summer driving season. But this year fires and power outages have marred production at many refineries. “There are unusual problems in the refinery business; everything that could have gone wrong went wrong,” says Fadel Gheit, senior energy analyst for Oppenheimer & Co. in New York. “From BP to Valero to Exxon to ConocoPhillips, every company had an operating problem or shutdown this quarter.”


Still, American drivers need not fear the worst, analysts say. That’s because, despite tight supply and steady demand, gasoline prices will likely peak soon, meaning relief at the pump isn’t far off. Analysts say that troubled refineries in Texas, California, and Indiana will start ramping up production, and there should be enough supply to quench the thirst of America’s automobiles as summer driving starts.

“Everyone likes to hype $4 gasoline because it’s sexy,” says Tom Kloza, chief oil analyst for the Oil Price Information Service, an energy consulting firm. “The reality is that we’re nearing the highs of the year, and within 30 days there will be more gasoline on the market. You might see $4 in tony places such as Beacon Hill or Beverly Hills, where they wear the price as a badge of honor.”

Business Week