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Gas to peak at $4.15 a gallon but stay high
WASHINGTON -- Gasoline prices should peak at $4.15 a gallon this summer, the government says -- finally an encouraging word for motorists who might be thinking the cost of a fill-up will just keep climbing.
But wait: The predicted relief is pretty modest. Prices at the pump are likely to stay around $4 a gallon much of next year, according to Wednesday's projections by the Energy Department's statistical agency.
Oh, and the government tends to err on the optimistic side.
Guy Caruso, head of the federal Energy Information Administration, delivered the sober news at a congressional hearing on energy prices and the future of oil.
Even as he spoke, oil prices jumped again, edging for a time above $138 a barrel and putting yet more upward pressure on gasoline prices. By the end of the day the market seemed ready to set new records above $140 a barrel.
A drop in gasoline inventories, concerns about hurricanes that could disrupt Gulf of Mexico supplies, and most important the high oil prices all have contributed to a belief that the upward spiral of gasoline costs will continue at least for a few months, according to Caruso as well as private energy experts.
Motorists are paying $4.05 a gallon on average nationwide, and considerably more in some parts of the country, according to a survey of gas stations by AAA and the Oil Price Information Service. That's an increase of nearly $1 a gallon since January.
And little relief is in sight.
Prices are likely to remain close to or above $4 for the rest of the year and average $3.92 a gallon in 2009, the Energy Department agency forecast.
Crude oil prices are expected to average $126 a barrel in 2009, or $4 a barrel higher than this year, as oil supplies and demand will remain tight, Caruso told the House Select Committee on Energy Independence and Global Warming.
"The consensus view," said Rep. Edward Markey, D-Mass., the committee's chairman, "is that oil above $100 a barrel is going to be with us for some time."
The Energy Department's statistical agency projects oil prices declining to $86 a barrel in 2010 but then increasing to $107 by 2015. Markey said he doubted those numbers and noted that EIA projections in the past have been overly optimistic when it comes to energy prices.
Predicting future oil and gasoline prices is highly uncertain with the volatile global oil markets, Caruso acknowledged.
His agency bases its gasoline projections on assumptions of future oil prices, expectations of demand and economic trends. It has revised its figures upward several times since last fall -- not having anticipated the huge surge in global oil costs.
"They usually dramatically underestimate the cost," said Eli Hopson of the Union of Concerned Scientists, which has examined annual EIA price projections going back to 2003. Each year the average price predictions were understated by 36 to 80 cents a gallon, said Hopson.
A panel of energy experts, meanwhile, told the House hearing that people shouldn't expect any quick fixes to the country's energy problems.
They said one answer is more conservation and a shift to alternative fuels -- transitions that would take time. Caruso told the lawmakers that new auto fuel economy requirements and the increased use of ethanol and other alternative fuels are expected to produce "a substantial reduction" in oil use and oil imports over the next two decades.
There's "no short-term fix, no panacea," said Karen Harbert, executive vice president of Institute for 21st Century Energy, a group affiliated with the U.S. Chamber of Commerce.
Amy Meyers Jaffe, an expert on energy markets at Rice University, said there is a growing scarcity of energy commodities, relative to demand, that has pushed oil prices higher.
"But it's hard to quantify how much of a risk premium is built into the current price of oil, how much is based on perception of long-term fundamentals such as supply and demand, and how much reflects a speculative mania linked to negative trends in other financial markets," said Jaffe.
Gasoline prices are part of the presidential campaign as well.
Democratic presidential hopeful Sen. Barack Obama on CNBC called for a second economic stimulus tax rebate to "put hundreds of dollars into the pockets of families to offset some these rising (energy) costs during this summer and into the fall."
His Republican rival, Sen. John McCain, renewed his call for suspending the 18.4-cent-a-gallon federal gasoline tax to help people cope. Obama has called that a gimmick, and most economists have rejected it as a solution.