Back in college, I was privy to the best-kept secret in Pennsylvania (so I thought, at least). Every Wednesday at about 1 A.M., I quietly crept out of my driveway, afraid of drawing the attention of curious neighbors. A few twists and turns led me to my destination: A small Hess station a few blocks off the main road. 

"What was so special about this specific Hess?" you would have asked.

"That's where I fill up my tank for $0.89 a gallon," I'd reply.

Realistically, I knew I wasn't the only one keeping that secret because of the unusually large number of patrons whenever I rolled by the station. Although the other stations were selling gasoline for only around $1.15, the thought of paying thirty cents less gave me an amazing feeling. Granted, my nighttime excursions may have been because I didn't get off work until midnight, but filling up at those prices was still exciting, as if I was part of an episode of the Twilight Zone.

Last Saturday I ended up visiting a few friends at the old alma mater. The second I realized my gas tank was on empty, my heart skipped a beat. If my usual gas costs me about $2.85 a gallon in Baltimore, surely the Hess station wouldn't fail me.

As soon as I turned the last corner, the sign came into view: $2.80 per gallon. I'll admit I had been secretly hoping it would be under $2 a gallon.

It seems that gas prices had finally caught up with them. After paying for my gas, I asked the attendant why they were the same as other stations. His answer startled me a bit. "This is cheap compared to a few weeks ago. You're lucky you weren't here a couple months ago."

Driving the Same, Paying More

This week, an overwhelming number of readers have been asking me (some more politely than others) why gas prices are dropping despite the record crude oil prices. You see, whenever people see oil prices skyrocket they expect to get gouged at the pumps.

So after seeing oil flirt with $90 a barrel, I wasn't surprised by the confusion. All of a sudden readers were afraid the price for a gallon of gas would rise again. Yet that hasn't been the case. Although we've seen oil spot prices rise dramatically during a time when they normally fall.

What's going on here? Here's a look at average gasoline prices compared to last year:

Retail Prices (Cents Per Gallon), Energy Information Agency (EIA)

In other words, we're still paying more--nearly $0.54 per gallon more!

Despite paying more, notice that we haven't come close to hitting the summer's peak price. We can blame the lack of demand for that.

We're clearly out of the peak driving season, meaning that consumers are using much less. But one of the interesting notes here is that gasoline demand is nearly the same as last year's:

Oil Supplies Getting Tighter

According to the EIA, crude oil accounts for approximately 53% of gasoline prices. You might not be cringing now at $2.76 per gallon, but how about paying $3.30 next year? I think we'll be lucky if gasoline costs us $3 a gallon in October 2008. Experts have made a wide range of predictions for gasoline prices next summer, some as high as $13 a gallon.

Personally, I think the oil markets are going to get much tighter from here on out. But the question is: At what price will the average driver start cutting back on his gasoline use? Six dollars a gallon? Ten dollars a gallon? I think gas prices could easily rise over five dollars a gallon next summer, whether demand remains the same or falls.

Keeping an optimistic view on oil prices is like squinting down a long dark tunnel for a glimmer of light. Many of you are skeptical that the world can produce more than 86 million barrels of oil per day, but over the next few weeks, I'll show you where to go so don't have to be just an energy spectator.

Until next time,

Keith Kohl

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Maybe someone can explain to me why diesel fuel is anywhere from 30 to 40 cents per gallon more than gas. Its my understanding that diesel is comes off the cracking process and does not require the same degree of refining that gas does. I would think the truckers would be staging protests since they all use diesel.

Province Alberta Canada is in a panic to build a Nuclear Plant in the north of the province. They need the electricity (70%) to extract the oil out of the tar sands. A guesstimate is 3 trillion barrels of oil in the Tar Sands.
Israel has a Nuclear Waste processing plant that nutrilizes nuclear waste and produces electricity and non toxic black coloured glass which can be used in many different industries.
$6.2 billion for the Nuclear Plant how about a nuclear waste processing plant in close proximity to the Nuclear Plant? The processing of nuclear waste $3000/ton. To package and bury nuclear waste $30,000/ton
Alberta has 10,000 years of coal supply. Technology can eliminate acid rain and ill health from coal.Auto fuel can be made from coal.

If T. Boone Pickens, Walter Youngquist, etc. are correct, the use of the various derivatives of petroleum to fuel the world's engines will stop within the next few years. What happens then?

I no longer own a car. When I wish to take a mini-vacation on weekends, I rent a brand-new car and have fun for 3 days - the rest of the week I use public transportation. F T E C !

Sincerely,
J.E. Kenny

think of the number of unemployed who now do not drive to work and you'll understand why gas prices will continue to fall.

the reason gasoline is still rreasonably priced vs. spot oil prices is as you say we have converted to winter blend and is cheaper to make and supply is good. however heavy crude for construcion, plastics, exct. demand is tight due to aisa fast growth. gasoline really only makes up around 30% use of oil.

Hi,
I've read many articles on rising fuel prices. One thing that no one mentions is the fact that the value of the dollar against other world currencies is falling drastically.

I have noticed that for the rest of the world oil prices have risen about 9% while for us here in the USA it has been very high.

I think you should study and mention the effect that the falling dollar has on energy prices also.

Supplies are tight but also the money problem is making it much worse.

I know peak oil is a problem but to put everything in perspective all thing must be taken into account.

Ron

In the UK, we're paying the equivalent of $9 a gallon

$3 a gallon is ridiculously cheap

In 1984, a liquid product was introduced that increased gas mileage 7-14%, but the only users were those who were either aware of it side benefits (increased performance, and reduced emissions ofaround 50%)$1.24 for regular and the price of this product was around $2.00.

Today that product has 300,000,000 proven miles and hundreds of test evaluating it with both gasoline and diesel.

It also provides emission reductions in excess of 50%, yet the price of gas hasn't gotten to that point where it hurts the general public enough for the masses to go out and find it.

On Oct. 8, 2005 that product was converted into a pill for ease of use in the US.
It cost $2.00 per tankful.

It may only be a band-aid, yet it is guaranteed to work and does.
spend two dollars to save about $5.00 per tank.

If everyone would take a little baby steps lkike this to reduce consumption and emissions we may be in better shape.

I also was wondering how pump prices were staying low (relatively) while crude oil was hitting new highs. Though the business editor of the MSNBC website and I disagree, I think the answer was in an article that MSNBC published two weeks ago (hidden in the article): since last May, refinery profits have plummeted from $37 a barrel to a low of $2.90 a barrel. It is now closer to $6 a barrel. The refineries are eating the profit loss, and keeping the pump price low!

Good Morning Keith;
Are you aware there is collusion between the governments and the oil producers. Cant be substancialted, but You can accurately guess who is bed with who. The oil industry pays well for this pricing structure, and we sit back and say we cant control this. Just takes about three days of everyone not purchasing fuel.
I believe someone will get the message. The cost of production has not rissen that much over the past few years. I know the resource will be streched in the future, but we just will have to deal with that when it arrives. Best regards. Enjoy your articles.
Don Herd, Vancouver BC

Your musings above and in related articles are informative and interesting. Given your predictions, would you care to comment on the effect rising crude prices will have on E-85 fuel pricing. Do you think it will continue to track unleaded into the statosphere? Maybe there's some correlation between a bushel of corn and barrel of crude. Now that a pair of jokers if I've ever seen any. Thanks........Jack

If he commits treason again takes Irans oil over an shuts more oil off the price goes up again Global game of chess google terrorstorm / Endgame