The national average gas prices above $ 3.50. However, demand in the U.S. is at its lowest point since 1997. So what’s driving this run? Gas prices are a flying start in 2012. The national average for a liter of regular gasoline is more than 8 percent since the end of 2011, an increase of $ 3.25 per gallon to $ 3.52, according to new data released by the U.S. Energy Information Administration. Gas prices tend to rise through the first half of the year, this is the first in the average price per gallon has breached the $ 3.50 mark. If this pace continues, the national average hit $ 4 a gallon in May, if not sooner. The last time the average price in the U.S. was the summer of 2008, when the price of oil hit 140 dollars a barrel. Last year, gas prices approached $ 4, hitting an average of $ 3.98 in April, before falling.
Higher gas prices could pose a serious threat to the fledgling economic recovery that has shown recent signs of strength. Typically, $ 4 per gallon tends to the point where the price of gas starts to eat into economic growth.
“Always the economy 4 to 5 percent of GDP spend on oil, you’re near the speed to stables,” said Jason Stevens, an equity analyst at Morningstar. “We saw this last year when Libya and Japan exploded, and prices went through the roof. Demand retreated a bit, but growth has slowed.”
Strangely, the current run-up in prices comes despite sinking demand in the U.S. ‘demand for gasoline is as low as it’s been since April 1997, “said Tom Kloza, chief oil analyst for Oil Price Information Service. “People are well surprised by the fact that we use less gas than we have in years, but we are paying more.”
Kloza believes much of the increase is the result of speculative money in gasoline futures contracts flowed since the beginning of the year, especially from large hedge funds and asset managers. “We have about 11 billion U.S. dollars of speculative money coming on the long side of gas futures seen,” he says. “Each of the past three weeks we have a record net long position is taken.”
Refineries are also getting squeezed by higher oil prices in recent months, causing some of them rather than to close with loss, says Stevens. “The price refineries pay for crude oil was virtually unchanged, while the price received for gasoline was lower than what they need to get the crack to spread,” he says. A crack spread refers to the oil refiners’ profit margins and is about the difference between what they pay for crude oil, and what they make by “cracking” crude oil into refined petroleum products like gasoline. As the U.S. refining capacity has declined, prices began to rise.
But the prices are not high everywhere. For example, the average price of gas in Wyoming is $ 2.90 now, almost a dollar cheaper than the average price in California. This is largely due to the relatively cheap crude oil to the Midwest from Canada. “There is more difference between prices for crude oil than I’ve ever seen in my career,” said Kloza. “It’s extraordinary.”
source:businessweek
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