Have Pump Prices Peaked? Some Experts Think So

It may be difficult to celebrate when you’re paying $3.92 a gallon for gas but the good news is that’s a penny cheaper than where the national average for a gallon of regular stood last week, according to the AAA.

Indeed, while there are still plenty of pessimists wondering how much beyond the previous record oil prices might yet go there are signs that the run-up at the gas price has or will soon reach its peak. Those who think the numbers could soon start falling point to factors such as the weak European economy, the slow American recovery and signals from the Iranian government it may be willing to compromise on its controversial nuclear program.

That’s good news for weary motorists who have been bombarded with pessimistic headlines counting the days until gas would pass the previous $4.11 record set in July 2008. Some observers have been forecasting the market wouldn’t settle down until gas came closer to the $5 mark, in fact.

But the AAA and other groups monitoring fuel prices are reporting an unexpected decline this week, a modest penny on the national front – but a full 10 cents in freeway-snarled California. There, prices traditionally run well above the national average, but Golden State gas pumps peaked at $4.36 last month and are down to $4.26 as of Tuesday, reported the AAA.

“I think it’s at a plateau, for now,” said Denton Cinquegrana, senior editor for West Coast fuel markets at the Oil Price Information Service, told the San Francisco Chronicle. “I just don’t see how that record is going to happen this year.”

Analysts with the gas tracking service gasbuddy.com also are predicting the fuel price surge has now run its course.

The latest signals from Iran calling for compromise have clearly eased pressure. That nation’s push to ramp up its uranium refinement program has led to threats of military action by both the U.S. and Israel, while the European Union has been stepping up costly sanctions. In turn, Iran cut off oil shipments to the U.K. and France and threatened to block the Straits of Hormuz, where much of the Mideast oil supply passes through.

“Even if demand were to surge, we have flush supplies, a lot of refining capacity and repeated assurances that Saudi Arabia would step in and hike production if there are problems with Iran,” Trilby Lundberg, of the Lundberg Survey, told USA Today.

Meanwhile, Europe’s economic problems are leading to reduced fuel demand and there are signs that even in China – now a major factor in setting global oil prices – the economy is cooling. There are conflicting signs about the pace of the U.S. recovery, but oil traders are pointing to an increase in domestic reserves, a factor that has led to a decline in benchmark Texas crude on Tuesday.

The oil market remains highly volatile, however, and Europe’s Ice Brent Crude resumed its upward March on Wednesday, rising 12 cents to $120.00. Other oil indices climbed by nearly $2.

In the States, there are wide regional variations in gas prices, from more than $5 in some parts of Alaska to less than $3.50 in some parts of the Lower 48. The government’s Energy Information Administration today reported a 3 cent increase in prices along some mid-Atlantic states.

The EIA expects fuel prices to peak in May at $4.01 a gallon – still short of the record, and predicts prices will average just $3.73 between now and September.

Beyond overseas concerns, a variety of domestic factors could still trigger further price hikes, analysts warn:

The annual switch from winter to summer blends could, at least temporarily, lead to shortages of refined fuel in some parts of the country;
Problems at a major refinery could also lead to regional price increases, as happened earlier this year when Oregon siphoned fuel from the California pool;
Motorists could reverse recent trends and start driving more, increasing demand for fuel;
And a sharp upward surge in the economy could be echoed in fuel prices – though a slowing of the economy might alternately drive pump prices downward.

The recent fuel price surge hasn’t been entirely bad – at least not for the auto industry. As TheDetroitBureau.com has reported, rising gas prices have led to a sharp increase in demand for small cars and high-mileage powertrains, with the fuel economy of the average vehicle sold in the U.S. surging to a record 24.1 mpg in March.


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