Rock Talk

The Pain at the Pump

Last updated on May 16, 2017 at 02:42 pm

Plymouth Rock knows all New Jersey drivers are experiencing pain at the gas pump. At the time of this post, the average price of a gallon of gas in New Jersey is $3.58. In southern New Jersey, prices are hovering around $3.62 in some areas. Increased prices are not only affecting cars—diesel fuel is averaging $3.96 per gallon, with many stations charging over $4 per gallon.

The pain we are feeling isn’t exclusive to Jersey drivers. Across the entire country, the price of gasoline has risen steadily for the last 30 plus days from $3.27 to $3.74 per gallon. California is suffering the most from the gas burden, with prices across most of the state exceeding $4 per gallon.

The real question is—why are gas prices so high all of a sudden?

According to CNNMoney, OPEC (the cartel of oil exporting nations) has dropped crude oil production by nearly one million barrels per month in response to increased production by other nations, including the United States. The drop in production is one factor driving up prices.

A second factor is demand from China. Many experts predicted a decline in the Chinese economy, which would have reduced their demand on foreign oil and eased global production schedules—keeping prices lower. This decline did not fully materialize.

Third, many refineries close for routine maintenance at the end of winter. Gasoline in the summer months is formulated differently in order to lower emissions because historically the number of drivers on the road increases. It is because of this reformulation that plants must close, perform maintenance, and then begin producing “summer gas.” An upward trend in gas prices is normal from February to Memorial Day strictly based on expectations of rising consumption and refinery slowdown, but this year’s ascent started mid-January and has climbed faster than ever before.

Is it all just speculation?

Industry insiders have claimed “gas petro-noia” as commodities speculators bet on higher prices happening earlier this year than previous years, “but there is still a lot of room for prices to move upwards” according to Atlas Commodities oil broker Carl Larry.

In 2008 when gas hit its all-time high national average of $4.11 per gallon, crude was $145 per barrel. The price of crude is currently hovering between $96 and $98 per barrel this week. Many commodities dealers are predicting prices to peak in middle March at $4.25, seeing little or no reason for the price of crude to decrease before then.

What keeps crude trending upwards is an increased demand from the US, whose drivers have not curbed intake despite the high unemployment rate and slow-growth economy. With this continued demand, any other of the usual suspects like refinery shutdowns, unrest in oil producing nations, or natural disasters will send the price higher fast.

A $5 national average?

Insiders are doubtful that we will see a national average of $5 per gallon, although some areas of California have cracked that ceiling. The reason the price at the pump will stay below $5 is simple—the US consumer refuses to pay $4.11 per gallon. When prices in 2008 cracked the $4 mark, consumption dropped drastically. OPEC, the refineries, and the gas companies felt it across the board.

Here in New Jersey, we see consumer habits changing already. In a local discussion on the Facebook page for Jersey Doesn’t Stink, many fans chimed in about the high price of gasoline. One fan stated, “I’m watching every dime, I only use my car when I absolutely have to.” Another fan echoed those sentiments, “I can only afford to drive to/from work and a few errands.”

 

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