What's Driving Gas Prices to Record Highs?

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Slowdowns at U.S. refineries and growing Chinese demand for crude oil has pushed up gas prices for American drivers to more than $4 per gallon in some areas. The good news is the upsurge is probably temporary and should drop in a few weeks as supplies increase.

Friday’s national average stood at $3.78 per gallon, with prices above $4 per gallon in California, Hawaii, New York and the District of Columbia. Wyoming drivers are only paying $3.23 per gallon on average, according to AAA spokesman Michael Green.

“What you are paying depends a lot on where you live,” Green said. “Everyone’s prices have been rising since mid January and we expect them to rise through late March or early April.”

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Green said that U.S. refineries typically close down production at this time of year to do maintenance, and to switch their production lines to make special less-polluting summer blends of gasoline that are required in some states with bad air.

Gas prices have been rising steadily for the past 36 days in a row, Green said, and Friday’s average is the highest it’s ever been at this date. In nine of the previous 10 Februaries, gas prices have risen. Prices usually peak in April, however the all-time high was July 11, 2008, when the national average for a gallon of gas hit $4.11.

Adding to the refinery shutdowns are bottlenecks in domestic distribution, according to Peter Morici, professor of business and public policy at the University of Maryland. Morici says big domestic oil supplies aren’t getting refineries fast enough.

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“We are transporting oil from North Dakota to eastern refineries via railroad,” Morici said. “That’s not what you want to be doing. It’s like getting some camels to move Toyotas.”

Construction of domestic oil pipelines has proven difficult because of concerns by environmental groups. Morici says overall U.S. demand for gasoline has stabilized because drivers are choosing more fuel-efficient vehicles, while other sources of oil, such as heating homes or use in petro-chemical products, has also declined as firms switch to cheaper natural gas. At the same time, China’s demand for crude continues to squeeze supplies worldwide, Morici said.

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