Tuesday, April 26, 2011

Unleaded regular rises over $4.00/gallon today in Metro Detroit

I'm going to give the Detroit Free Press the honor of telling this story first.

Average gas price prediction of $4 to weigh on wallets
Average prices for unleaded regular in metro Detroit began the week at $3.98 and are likely to surpass the emotionally wrenching $4 mark, say experts tracking prices throughout the Midwest.
It's already happened, at least locally.
“Speedway just set their retail price at $4.17 (for unleaded regular) in western Michigan and that’s above what we expected,” said Patrick DeHaan, a gas market analyst with GasBuddy.com in Grand Rapids. ”We had warned are members to expects between $4.05 to $4.15 so now it looks like we’re going beyond that.”

Other Speedway stations closer to metro Detroit will raise prices to $4.09 a gallon at noon today, said a source who spoke to several retailers Monday morning.
This is exactly what the Speedway station a block from my house did today. Eleven gallons of unleaded regular cost $45.00. Good thing it will last me a month. The bad thing is that it will be more expensive the next time I buy gas and even more expensive the time after that and the time after that.
Tom Kloza, oil analyst with the Oil Price Information Service, said, “We are still headed toward new 2011 highs for crude oil, gasoline, diesel and jet fuel, but I predict more sobering times for these commodities before spring is over.”
What Tom said.

Just the same, I don't know if the trend will continue for the gasoline I buy after August. When I ask the Magic 8 Ball about the price trend starting in August, it says "Outlook cloudy. Ask again later." Why? Check out the paragraphs below.
[M]any AFGD [Associated Food and Gasoline Dealers of Michigan] members have reported their gasoline sales have fallen about 2% to 3% from a year ago
That's why. As the price goes up, the demand goes down. Under normal circumstances, that means price will go down as well. As I've been pointing out, these are not normal circumstances.
Kloza said the degree of “demand destruction” varies from one region to another.
“Our field sources indicate that demand in some states is off by 5% to as much as 10% in some cases,” Kloza said. “California is on the destructive extreme. Rocky Mountain states and Texas see the least measurable impact.”
I could play expert here, but it turns out that WOOD-TV in Grand Rapids already called one in. Listen to the questions and his answers. As far as he goes, he's telling the truth.

AAA Michigan says gasoline prices are up 2 cents per gallon over the past week to a statewide average of $3.98.

In particular, the answer to the question about when gas prices would fall below $3.00 is optimistic, although "this fall" could mean any time between now and December 20th. $3.00/gallon gas by December? Yeah, I can believe that.
Also, it's not just gasoline. Diesel has been more expensive than gasoline for a while, and it's going up, too. Take it away WXYZ-TV.

As I've warned before, high energy costs will likely put the brakes on the current economic recovery, which finally turned into an expansion. In fact, they're starting to slow down economic growth already according to the following story from the Detroit Free Press.

Economic growth may have slowed
The U.S. economy probably grew at a slower pace in the first quarter as a jump in gasoline prices caused consumers to cut back, economists said a report due this week will show.
Gross domestic product rose at a 1.9% annual pace after increasing at a 3.1% rate in the previous three months, according to the median estimate of 66 economists surveyed by Bloomberg News before a Thursday Commerce Department report.
So, what's going on here? I'll let James Howard Kunstler explain.
You will recall, perhaps, that hoary old concept, the "bumpy plateau" of the peak oil story. This was the idea that the actual tippy-top "peak" of peak oil, studied at close scale, would actually take the form of a raggedy line representing the interplay between supply, demand, and most importantly the frantic psychological response of humans operating in markets. It was clear that economies would stagger under the burden of high oil prices, and economic activity would contract, and people would use less oil and the price would go down. When prices were real low again, people would resume buying more oil (and other stuff) and economic activity would mount and oil prices would go up again.
That's what's happening right now. As for the future...
We knew this would happen for a couple-few cycles, and that then things would get... more interesting.
Hang on for "a long, wild ride into the unknown." May I be up to being a worthy tour guide.

Yes, I used to wear a work uniform like that. Stop laughing.

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