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$4 A Gallon Gas Likely For Keeps

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By H. JOSEF HEBERT

The Associated Press

Published: June 12, 2008

WASHINGTON - If it's a shock to pay $60, or even $100, to fill up your gas tank, you better get used to it.

Prices around $4 a gallon are likely to be here for quite a while.

The Energy Department said Wednesday it expects gasoline prices to peak in August at about $4.15 on average - a dime more than today. That might be encouraging for people who are beginning to think prices will keep climbing forever.

But wait: There won't be much relief. The government estimates that prices at the pump could stay near that level the rest of this year - and next.

And the government tends to err on the optimistic side.

Guy Caruso, head of the federal Energy Information Administration, delivered the sober news Wednesday at a congressional hearing on energy prices and the future of oil.

As he spoke, oil prices jumped again, edging for a time above $138 a barrel and putting more upward pressure on gasoline prices. By the day's end, 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, 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 and 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 through 2009, the Energy Department agency forecast.

Supplies, Demand Tight
Crude oil prices are expected to average $126 a barrel in 2009, or $4 a barrel higher than 2008, as oil supplies and demand remain tight, Caruso told the House Select Committee on Energy Independence and Global Warming.

"The consensus view is that oil above $100 a barrel is going to be with us for some time," said Rep. Edward Markey, D-Mass., committee chairman,

The Energy Department's statistical agency projects oil prices declining to $86 a barrel in 2010 but increasing to $107 by 2015. Markey said he doubted those numbers and added 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 said.

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 per 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 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," she said.

Presidential Campaign
Gasoline prices are part of the presidential campaign.

Democratic presidential hopeful Sen. Barack Obama of Illinois appearing 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, Arizona Sen. John McCain, renewed his call for suspending the 18.4-cents-a-gallon federal gasoline tax to help people. Obama has called that a gimmick. Most economists also have rejected it as a solution.

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