"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 Administration (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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