Why High Gas Prices Could Linger For The Entire Year

man filling up gas tank

Photo: Flickr/sweeteralternative

Will the average family have anything left to spend on extras?  For many, the return of the 2 per cent payroll tax was enough of a setback.  Now, with gas topping $4 a gallon in some areas, consumers are scrambling to pay the pump…and the rest of their bills. After 32 straight days of increases, gas prices could scuttle more than a household budget— they could sink the fragile economic recovery.

We’ve been here before and the sky didn’t fall:

  • April 2011 – Gas in some areas reached $5 a gallon. 
  • February 2012 – Fuel efficient cars drove up gas prices.
  • April 2012 – Unbridled oil speculation sent oil prices through the roof.  Again, a gallon hovered around $4 in most areas.
  • August 2012 – The Midwest drought took its toll on corn and therefore on ethanol.  Prices spiked and threatened to hurt Obama’s approval rating.

So why is this year different?

Gas prices typically rise in late February or early March, which has analysts worried that this year’s early increases could mean higher prices are in store for the rest of the year. “This year…prices have risen largely because of higher oil prices from positive economic news and recent regional refinery issues,” Avery Ash, wrote in a AAA Fuel Gauge report in January.

But there’s more to it. NBC News cites four other factors:

  1. Refineries are switching over from winter to summer fuel, which is more expensive to produce.
  2. A Hess refinery in New Jersey that supplies 7.5 per cent of the Northeast’s gas is closing.
  3. Midwinter maintenance has led some refineries to go offline temporarily.
  4. Demand for gas is up, fuelled in part by more people returning to work.

If the trend continues, it could have a profound effect on the economy. Not only would consumer spending slow, but a sustained gas price crisis could lead to inflation.  One silver lining: It could increase demand for energy independence. 

More from The Fiscal Times:

  • The 8 Best Industries to Start a Business This Year
  • The Baby Bust: Is Having Kids Now a ‘Social Failure’?
  • Where the Rich Live: America’s 25 Top Wealth centres

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