As gas prices rise, we keep filling up

Gas prices in Chicago on May 8, 2007.

TEXT OF INTERVIEW

KAI RYSSDAL: It's one of those records nobody really wants to be around for. And since 1981, on an inflation-adjusted basis, none of us has.

The Reagan presidency was just two months old the last time gas was this expensive in today's dollars. And yet we're using it like it still cost just a $1.35 a gallon.

We've called Tom Kloza at the Oil Price Information Service to help us make sense of 2007's gas and oil prices. Hi Tom.

TOM KLOZA: Hi, Kai.

RYSSDAL: So here we sit at 3.22 a gallon for gasoline. And yet they tell us, all the experts do, that demand is on the rise. What happened to the law of supply and demand here with gas prices?

KLOZA: Well, I think you're seeing a staggered or delayed reaction right now. We're gonna see some changes here in the next month or so. Because beyond and above the sort of average price for gasoline, there's really the local price. And in some states right now, people are paying 50 or 60 cents more than they paid in the same week last year.

RYSSDAL: But there is this thing with gasoline demand, Tom, where it's sort of inelastic. If you have to drive, you have to drive.

KLOZA: Yeah, and there is that aspect of it. But there's also an aspect of it that has an emotional response, sort of, within the population. People will do some crazy things when it involves gasoline. And, you know, there's also this myth that you really can't do much about it. That, you know, you've already cut back as much as you can. And really, if you had a large percentage of the population drive by the equivalent of a half a coffee cup less per day, you would have a dramatic

kill-down in demand.

RYSSDAL: Let me put you on the spot for a second and have you look past sort of the summer driving season. Are we gonna back off these highs, or is it gonna keep up for awhile?

KLOZA: The combination of a little bit extra production coming on from refiners that were down for maintenance, and a little bit less demand, should cause us to level off and maybe even back off. The problem is there's another round, and another accent on all-time highs that could come around the end of July — when there will be probably almost hysterical reaction or looking toward Category 3, 4 and 5 storms in the Gulf of Mexico and the Caribbean. And nothing drives a market like fear. And my suspicion is wherever we back off — from let's say this weekend through early July — we'll probably reapproach those numbers when you start to turn on the TV and see the cyclonic cloud formations in the Gulf of Mexico.

RYSSDAL: Let me get back to that refineries issue you brought up briefly for a second. Are you confident that they're all gonna get back online and get to production that we need?

KLOZA: You know, I'm not confident. There is another school of thought that says this is what's happening to the infrastructure now, and a couple of things that work. Either some of the stuff is getting old, or . . . you know, safety is such a paramount, almost obsessive issue right now that we're never gonna be able to get to over 90 percent of utilization like we have in most of the years this century. I prefer to believe it's a statistical cluster. You know, if you flip a hundred coins, you're gonna have four or five in a row heads or tails, and I think this is just the luck of the draw here. But that theory'll be tested in the next couple of weeks. If by the middle of June, we're not producing another hundred, 200,000 barrels a day more of gasoline, I'm gonna start to worry a little bit and maybe move over to the other school. But I think it's more of a cluster than it is a new paradigm for the century.

RYSSDAL: Tom Kloza's the chief oil analyst at the Oil Price Information Service in Wall, N.J. Tom, thanks a lot.

KLOZA: Thanks, Kai.

About the author

Kai Ryssdal is the host and senior editor of Marketplace, public radio’s program on business and the economy.

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