What does the future hold for gasoline prices?

Marketplace Staff Jan 5, 2011

What does the future hold for gasoline prices?

Marketplace Staff Jan 5, 2011


Kai Ryssdal: Crude bounced back over $90 a barrel today. Up a buck to $90.30 at the close in New York. Oil prices have been climbing for a good couple of weeks now, driving pump prices up to a national average above $3. And leading to some speculation — all right, guesses — that we might see an even bigger bump later this year.

To get a sense of what’s really going on we called a guy who does oil for a living, Tom Kloza, chief oil analyst at the Oil Price Information Service. Tom, good to have you with us.

Tom Kloza: Hi, nice to be here.

Ryssdal: What is it that’s driving the price of oil right now? Is it as simple as saying the economy is recovering?

Kloza: Not as simple was saying the U.S. economy is recovering. Probably more worldwide economic growth — and that’s been driving the price of crude oil really for the last six or seven months.

Ryssdal: I’m hearing people talk about $100 a barrel — we’re at $90-something today. How realistic do you think that higher price is?

Kloza: I think it’s realistic, but I don’t necessarily think it’ll be a price that we average for 2011. We’ll probably have a cup of coffee above that price and we’ll see some prices retrench below that as well. But nothing along the lines of some of the hyperbole you hear out there in terms of $4 or $5 gasoline and $150 crude.

Ryssdal: ‘Course, you know, when it went to $147 a couple of years ago, there weren’t too many people saying, “Oh yeah, it’s gonna hit $147.”

Kloza: That’s true, but if you were untethered from reality about two years ago, you’re probably less likely to be untethered from reality within three years. And I think that’s one thing we have going for us this year.

Ryssdal: What about the longer term though, Tom? It’s not like we’re going to get off oil in the near-term future.

Kloza: No, and I’ll confine my comments to longer term, meaning this decade. I think at some point this decade we get into a problem where demand really butts right up against supply. I mean, for the last six months or so, worldwide demand is more than supply. But there’s a huge stock overhang. And that means that at some point this decade, we are going to be dealing with sort of the apocalyptic numbers of maybe $150 crude and $4, $5 gasoline.

I just don’t think it’s in 2011 or 2012, as some folks have suggested.

Ryssdal: What about the counterintuitive argument, though, when you get to oil prices that high that it’s actually a good thing, that it makes us realize that we need alternative technologies and that oil isn’t going to last forever.

Kloza: Well, I think there’s some merit to that. The problem with that is it’s a statistical kind of cruelty, where people on the margins of society and people that live paycheck-to-paycheck really get hurt by high prices for gasoline. A lot of people could dismiss even a move to, let’s say, $4 this year and say, well, the additional money that a lot of people get in terms of the payroll tax break will pay that off. But that doesn’t really help that family of four that’s living on a very very modest scale.

Ryssdal: Yeah. You mentioned this at the beginning, the global economy. I have to ask you about China and their influence on oil prices. Rising demand there, they’re buying more cars, they’re making more stuff.

Kloza: Yeah, and China is certainly the Michael Jordan, let’s say, of the team of emerging economies.

Ryssdal: LeBron James.

Kloza: Or maybe LeBron James or the Big Three there. But they’re certainly using a lot of fuel, and the other thing they’re doing is they’re putting in infrastructure. It’s a little bit like building a swimming pool and initially, you have a real big appetite for the water to fill it up. And that’s happening not just in China, but in other parts of the world as well.

Ryssdal: Tom Kloza, chief oil analyst at the Oil Price Information Service. Tom, thanks a lot.

Kloza: Nice to be there. Thanks.

We’re here to help you navigate this changed world and economy.

Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.

In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.

Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.