Climbing gas prices may put a dent in everyone's summer fun.Yes, ABC news buried the lede on this one. The important story isn't the price spike, which is ending, as I'll describe later, but the recognition of several realities about oil. First, as I mentioned, the AAA announced in a Congressional hearing that the retail price of gas is not likely to ever go below $3.00. Second, this is going on despite the domestic production of oil more than doubling. ABC News blames this on transportation costs. I'm not discounting these at all, but the reporter neglected the high cost of production. Fracking and mining tar sands are not cheap and neither is the oil produced by these methods. Third, the amount of oil on hand is much less than people think. Finally, Americans have been getting a bargain for a very long time on gasoline, something I point out to my students every semester. None of these are popular truths, but they are truths just the same. Personally, I'm surprised that ABC News had the nerve to say them. They still didn't have the nerve to make any of them the report's title or include them in the description.
As I wrote above, the price spike is ending. Since the previous report, local prices at the pump have gone down, although not by the most direct path. Last Friday, all the nearby stations lowered their prices to $3.77. On Monday, the same stations raised them to $3.79. The corner station wasn't content there. On Tuesday, its price shot up another 20 cents to $3.99. That ended up being another charge into No Man's Land, as the three outlets down the street held their prices steady. By the end of the day Wednesday, the corner station retreated back to $3.79. Today, all of the stations dropped their prices back to $3.69, exactly where they were when I wrote Crude prices reflected at pump after slight delay. Looks like the fear premium is going away.
According to the price of Brent crude and calculator at Econobrowser, the closing price of $108.52 for Brent should translate into $3.55, which is not only below the $3.69 locally and the $3.77 average for Detroit, but also below the $3.68 national average. I still expect prices to fall to the $3.59 level by the end of the month. That's only 11 days away.