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$5 Gas Could Be Down The Road

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By RUSSELL RAY

The Tampa Tribune

Published: July 1, 2008

TAMPA - It may not be long before Florida motorists are paying close to $5 for a gallon of gasoline.

Last week, the Organization of Petroleum Exporting Countries' president, Chakib Khelil, predicted oil would rise as high as $170 a barrel by the end of the year.

"If that were to happen, we could see another 75 cents added to the current price of gasoline," said Gregg Laskoski, a spokesman for AAA South in Tampa.

Motorists in the Tampa Bay area are paying, on average, $3.98 for a gallon of regular-grade gas, according to AAA's daily survey. Diesel fuel is averaging $4.75 a gallon.

"The broader economic indicators suggest we're probably on the cusp of a recession," said Scott Brown, chief economist for Raymond James Financial.

If $4-a-gallon gas isn't enough to trigger a recession, $5 gas would send the economy in that direction much faster, Brown said.

"The hit to the consumer just becomes much more severe," he said. "If people are spending more on food and gasoline, then there is less money to spend on other things."

But James Cordier, president of Liberty Trading Group, a futures brokerage firm in Tampa, said $5-a-gallon gas is unlikely because oil prices may be at or near their peak. Oil rose 97 cents to settle at a record $140.97 a barrel Tuesday on the New York Mercantile Exchange, and has been edging upward after trading in the $130 to $140 range for several weeks.

In the United States, gas station operators nudged the record for a gallon of regular a tenth of a penny higher, to an average of $4.087 a gallon nationwide, according to AAA, the Oil Price Information Service and Wright Express.

Cordier pointed to a sharp decline in demand in the United States, Europe and Asia.

"High prices are doing their job in reference to lessening demand," he said.

Oil prices are up about 63 percent since early February, when oil was $88 a barrel. Cordier said oil prices spiked to record highs this year because world production has peaked, never to rise again.

"The four or five largest oil producers in the world can't produce as much as they did while they have every incentive to," he said. "Russia is the largest oil producer in the world, and their production went down in 2007, and it's down 10 percent in the first quarter of 2008."

If oil producers can't increase production, the only way to lower pump prices is to lower demand for petroleum, Cordier said.

Meanwhile, Cordier and oil speculators like him are being blamed by Congress for jacking up oil prices to unjustifiable levels. During a hearing on Capitol Hill last week, Sen. Joe Lieberman, an independent from Connecticut, said oil traders "are artificially inflating the price of food and oil, and causing real suffering for millions and millions of people and businesses."

Cordier fired back, saying today's high oil prices stem from years of inaction by Congress.

"They've been sitting on their hands for the last 20 years doing nothing about it," he said. "We've done absolutely nothing to increase our production. We've done absolutely nothing to change the way the country runs on energy."

Saudi Arabia has pledged to boost production by 300,000 barrels a day. But Brown, the economist at Raymond James, said Saudi Arabia already is producing oil at full capacity.

"If you look at what they've been producing the last several years, there's been a downward trend," Brown said.

Meanwhile, the specter of $5-a-gallon gasoline is looming and motorists are bracing for higher prices.

According to a recent poll by Princeton, N.J.-based Opinion Research Corp., 86 percent of respondents believe gas will top $5 a gallon this year.

Brown was reluctant to offer a projection on the direction of oil and gasoline prices.

"It's really anybody's guess," he said. "They could move a lot higher, they could move a lot lower. At this point, I've given up trying to guess."

Reporter Russell Ray can be reached at (813) 259-7870 or rray@tampatrib.com.

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