Pump Prices for Gas Edge Upward as Late Summer Seasonal Driving Hits

Commentary:

Pump prices for gasoline and diesel moved up last week and today were slightly higher on investor speculation. The national average pump price for gas is rising at $2.73 a gallon – which some people are signaling as a worry. We have a different take on it. Prices for West Texas Crude are holding steady in the upper $78 range per barrel – a moderate level for oil considering the challenges in the Gulf and what appears to be an improving economic condition. Prices are lower than what analysts had expected by this time of year and inventories of crude are generally still building. That could change if there are unseasonably cooler temperatures in the fall (it drives up the demand and cost of heating oil). Another factor to watch would be the value of the dollar if growing optimism about the European economic condition weakens the value of the dollar (as the Euro reclaims lost ground against it). A weaker dollar causes a rise in relative gas prices.

Given that this is the last flurry of driving activity for the summer season, pump prices typically will rise right before back-to-school season takes over. Inventories of distilled products are holding steady and prices have risen slightly, but not enough for it to significantly affect consumer spending. Since the summer of 2008, the threshold for pump prices, at which consumer spending and commuter patterns are altered, has moved up considerably.

With Bonnie’s miss in the Gulf, prices may soften and come back down a bit as the summer months grind to an end. OPEC and the IEA are still looking for a global average oil price per barrel of between $85 and $95 by the end of the year. It will have to hurry to get to those levels. But remember, OPEC’s target price for oil has long been $75 per barrel (which it considers “fair”). It’s on the mark with that target.

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