By on May 7, 2008

gas-neuse.jpgThe Department of Energy's predicts that soaring U.S. gas prices will reach their zenith in June. After adjusting for increased ethanol use [gag], the DOE expects oil prices to decline to $110 a barrel this year, with a resulting drop in pump prices. That's $9 more than the agency's previous prediction– and down $11.84 from yesterday's price. As The New York Times points out, this supposed peak will occur just before the summer driving season begins. The aluminum foil hat-wearers amongst you might wonder how the price of anything can peak immediately prior to a large increase in demand (not to mention soaring foreign use), and play connect-the-dots with the American tourist industry/carmakers/presidential election, but I couldn't possibly comment. In any case, the Lehman Brothers reckon this is gonna hurt. “In the past, high prices could be offset by borrowing or making more money,” said analyst Adam Robinson. “It’s really when you have the triple bite — a weaker economy, less access to credit, and higher prices — that you see the consumer recoil.” Recoil? Maybe. Drive less? For sure. See lower gas prices? Not likely. The Old Gray Lady leaves us with "analysts’ forecasts for the price of gasoline over the next few years run as high as $7 a gallon."

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28 Comments on “Department of Energy: Gas Prices Will Peak in June...”


  • avatar

    Not to mention the falling dollar…

    [cartman]”Screw you guys, I’m making my own…“[/cartman]

    –chuck

  • avatar
    KatiePuckrik

    I cannot see oil prices dropping to less than $100 any time soon.

    The main reason for prices rising is not lack of supply (Huge oilfields have been found off Mexico, Sudan and Brazil, plus the UK North Sea is still pumping out plenty of oil) or unstable supply chains (Striking in Nigeria and warfare in the Middle East). the main reason for price rises is the fact that India and China are ramping their economies up. That means 2.4 BILLION (that’s a lot of people) want a standard of living that we have. That kind of number of customers is ALWAYS going to have an effect in the market.

    Until OPEC increases oil production to compensate for this increase in market (which would mean a drop in revenue for OPEC, so that’s unlikley to happen any time soon) or China and India get bored of increasing their standing in the world (Equally unlikely), then high oil prices are here to stay.

    Mr Lutz, you better get that Chevrolet Volt out quick smart!

  • avatar
    Alex Rodriguez

    The main reason that oil is going up is profiteers and speculators in the commodities market.

    Did you not watch the market yesterday? Some analyst declares that $200 oil is “possible” and the price skyrockets? Why? Because India and China’s demand numbers went up? NO. Because there is a shortage of supply? NO. It went up because the speculators said “Hey! There is still plenty of profit in this market, even at $120. BUY! Let me gather up 47 cents from my sofa cushions, that is enough margin to buy 1000 barrels of oil!

    The oil market is in dire need of new regulation.

  • avatar
    menno

    But, Alex, just who would regulate it? The same people in Washington DC who continually pander to the public to buy votes, all the while taking monies (in various quasi-legal ways) from special interest groups?

  • avatar
    M1EK

    Good lord. People, there’s nobody except the Saudis who even CLAIMS to be able to pump more oil in the short-term, and they’re pretty obviously lying.

    Those new fields aren’t coming online quickly enough to make up for depletion.

  • avatar
    jolo

    This is an election year with a republican administration wanting it to stay republican and a democratic congress that wants both houses and the presidency. The politicians will do anything to discredit the present administration, even going as far as inconveniencing their constituents so that a new administration can come in. It happens every four years and it does not matter who is in charge because those that are not will let the people they serve suffer in order to get their candidate in the white house. This is all part of the political process.

  • avatar
    KixStart

    KatiePuckrick, The Volt won’t make much of a difference. What’s the total number of vehicles in use in the US? 150million, maybe? Volt production of 150K per year (dream on, GM) allows the replacement of just .1% of our current gas hog fleet per year. After 5 years of Volt production, 1/2% of the fleet will be Volts, presuming the total number of cars on the road doesn’t increase.

    Even if other manufacturers (Toyota, Honda…) begin mass production of cars fuelled largely by electricity, it will easily be a decade before any significant portion of the US fleet – or the world’s – is electric. Sales of gas vehicles will probably increase just as fast – and perhaps faster in the near term.

  • avatar
    KatiePuckrik

    Mr Kixstart,

    My comment was sarcastic twofold:

    1. I know it won’t make much difference.
    and
    2. Does anyone REALLY believe GM will pull the Volt off in any meaningful timescale?

    Sorry about that, my keyboard is very deadpan…

  • avatar
    AKM

    In any case, I’m amazed by how my commute traffic has changed lately (I live in northern NJ): within one year, it has gone from 50-55% trucks/45-50% cars to 60-65% cars/35-40% trucks. Never saw a change happen that fast.
    It’s an area where people buy new vehicles pretty often, so I guess a full 20% of the cars have their lease/loan expire every year.

  • avatar
    dolo54

    no more suvs is the silver lining in this dark dark cloud.

  • avatar
    Alex Rodriguez

    Good lord. People, there’s nobody except the Saudis who even CLAIMS to be able to pump more oil in the short-term, and they’re pretty obviously lying.

    Those new fields aren’t coming online quickly enough to make up for depletion.

    We are at 5 year highs in terms of supply, demand is falling like a stone, yet the price has gone up 200% in the last 2 years?

    There is no possible way to explain the price of oil using supply and demand. I’ll post 50 quotes from analysts, producers, and economists saying that exact thing if you’d like. Supply & Demand have NOTHING to do with $120 oil.

  • avatar
    MattVA

    As I type this, current price of a barrel of oil = $122.07. Price of a barrel of oil in Euros = 78.51.

    Back in 2002, the dollar was actually worth more than the Euro. I’d say a lot of the increase of the price of Oil is due to the plummeting value of the dollar.

    I see nothing before the inauguration of the next president that could push the value of the dollar up.

  • avatar
    menno

    Alex, I have not seen what you are alluding to in terms of supply being at 5 year highs. I’ve seen articles stating the opposite. Demand is down approximately 1 percent in the United States, I guess I personally would not describe that as falling like a stone.

    Now if a certain lady (and I use the term advisedly) gets into the White House and keeps her “promise” to sue OPEC in the WTO to keep them from raising prices, you will likely see a 65% reduction in supply as OPEC simply shuts off the tap of oil to the United States.

    Thankfully, we can at least be assured that no politician ever keeps any promises made on the trail to the White House.

    As for oil supplies, in a 2 minute search on ask.com, I found this 8 year old article which is just a bit presceint (to use understatement a bit)

    http://www.petroleumequities.com/OilSupplyReport.htm

    Found this advertisement/infomomercial while searching, and it may be of interest to everyone.

    http://www.energyandcapital.com/subscribe/2137?gclid=CLOBhJLTlJMCFQmaPAoduEomAQ

  • avatar
    menno

    The Financial Times people in London are not prone to hyperbole. Here’s an article from just last year.

    http://www.ft.com/cms/s/0/a38a39ae-4729-11dc-9096-0000779fd2ac.html

  • avatar
    menno

    Matt, I have to agree that the dollar value collapse is hurting Americans (re: oil price increases) more than any other groups, except those countries locking their money at the same value as the US dollar. Here’s an article from the Financial Times from just yesterday. $200 a barrel will hurt – a lot. http://www.ft.com/cms/s/0/70b4ef0a-1b91-11dd-9e58-0000779fd2ac.html?nclick_check=1

  • avatar
    yankinwaoz

    I think the DOE is not factoring in the falling US dollar as a source of raising oil prices (when measured in US dollars). As long as we continue to burn through credit, then the price of importing goods (like oil) will continue to rise. Simple as that.

  • avatar
    mel23

    January 20 is a long way off yet. Rather pathetic to see the US media trying to gain sympathy by admitting that, yes they really should have been more skeptical of Bush’s claims about WMDs especially since he’d tried other ploys such as that the Iraqi people were suffering, and that WMDs was the only thing that stuck to the wall. Never mind we had inspectors in Iraq too who didn’t find the WMDs that weren’t there. So now, with our chastened media and wiser voting public, what do we see? Why a scenario that rhymes but with Iran as the demon. Why they’re enriching uranium and they’re a threat to everyone so we’d better go get ’em. And the media beats the drum to the time called by politicians and and the public dances along. So $100 oil or $120 oil might look pretty good before long.

  • avatar

    @MattVA

    You have to type faster – the price of oil is now well over 123.

    And at Katie – I hope your deadpan keyboard was panning away when you wrote this:

    The main reason for prices rising is not lack of supply (Huge oilfields have been found off Mexico, Sudan and Brazil, plus the UK North Sea is still pumping out plenty of oil) or unstable supply chains (Striking in Nigeria and warfare in the Middle East).

    ===

    No such thing. North Sea oil production is dropping. The Brazil oil field is hyperbole – they haven’t even touched oil yet with their first test hole.

    ===

    There’s not enough oil there. Some of the price is driven by speculation, but the reason you can speculate is because there’s a hole in the bathtub and no one knows how to plug it.

    Energy prices are racing away.

  • avatar
    zerofoo

    A Mini Cooper for the wife is looking better each day.

    I suspect in the next two years my wife’s Jeep Grand Cherokee will be relegated to vacation/Home Depot/bad weather use.

    -ted

  • avatar
    Geotpf

    Two billion Chinese and Indians are all buying their first cars at the same freaking time. Of course gas prices are up. Doesn’t matter much if demand in the US drops by 10%; prices will still keep going up, up, up.

  • avatar

    I think the correct #s on the Chinese and indian populations are 1.5 and 1.2 billion respectively.

    Without the one-child population there would be another 300 million Chinese.

    Of course, if we’d stabilized our population back in the early ’70s, when Nixon was advocating that, we’d be 200 billion instead of 300 billion, and we wouldn’t be wasting so much gasoline in traffic.

  • avatar

    @David

    Careful with the billions there, you begin sounding like a politician licking his chops over a potential earmark!

  • avatar
    Airhen

    I would be all for electric cars if there were some new nuclear power plants coming on line.

  • avatar
    Engineer

    We are at 5 year highs in terms of supply, demand is falling like a stone, yet the price has gone up 200% in the last 2 years?
    Current supplies are touching 2005 levels, setting off furious debate among Peak Oilers about the exact date of the Peak (and when the end of civilization will occur).

    US demand may be falling, but global demand keeps rising, due to some countries subsidizing gasoline prices. Who would do such a thing? Well, oil producers can obviously afford it (for now) and China (where the Politburo controls everything).

    I’ll post 50 quotes from analysts, producers, and economists saying that exact thing if you’d like. Supply & Demand have NOTHING to do with $120 oil.
    You are able to find 50 fools among the world’s analysts and economists, and some liars among the producers. This is NEWS to you? Man, we gotta talk. I have a garage full of stuff you need to buy…

  • avatar
    ihatetrees

    You are able to find 50 fools among the world’s analysts and economists, and some liars among the producers. This is NEWS to you? Man, we gotta talk. I have a garage full of stuff you need to buy…

    Well said, but I think markets and economists over the long term will prove to be correct.

    There IS a ton of uncertainty out there…

    You’ve got (potentially) very high demand from India/China…
    Poor to crackhead-insane degrees of transparency in reserve/production numbers from the Saudis to the Venezuelans.
    The fed’s preference to Earnhardt the dollar in order to prop up sheeple who couldn’t understand the phrase ‘variable-rate’.
    Potential large political gains in the US for the more protectionist and economically illiterate party.
    Weather. We’re due for a production disrupting storm in the gulf again – and while I don’t wear a global warming foil hat – a bad ‘cane this year could make gas hit $6/gallon.

  • avatar
    Johnster

    AKM : In any case, I’m amazed by how my commute traffic has changed lately (I live in northern NJ): within one year, it has gone from 50-55% trucks/45-50% cars to 60-65% cars/35-40% trucks. Never saw a change happen that fast.
    It’s an area where people buy new vehicles pretty often, so I guess a full 20% of the cars have their lease/loan expire every year.

    Agreed. It’s the same thing in the Denver area. And I’m amazed at all of the rusty old beat-up Geo Metros that have suddenly reappeared on the streets again.

  • avatar
    Jacob

    The oil market can’t be regulated by our government. The oil prices are determined globally, not in the united state. Some economists also doubt that the high oil price is supposedly a result of speculation. The theory goes that if the high prices are a result of speculation, then there should be plenty oil in the inventories, but most oil producers and traders have all time low inventories. Of course, the OPEC could maintain its inventory of oil in the ground, but then that’s not the issue of oil speculation. That’s the issue of a good old cartel tactics that OPEC had been using for price gouging for a long time now. And in the end, if the consumers are buying up all the oil available, then the current price is _indeed_ a result of demand and supply interaction. Why should producers and traders be willing to charge less if people still buy gas at the current prices. My personal view is that no additional regulation is necessary. Though, the United States could increase the refining capacity, and make sure that all states have the same fuel standards and formulas, thus making the refinery business more competitive. However, that would still shave off only a few cents off the prices. At least 70% of the price people pay for gas at the pump is the price of oil used to make that gas.

  • avatar

    The world should have cracked 90 million barrels per day to keep pace with growth prognostications. It’s getting more and more likely that we’ll never crack that ceiling. The producers aren’t able to deliver.

    By 2020, depending upon which econ-forecaster you trust, we should be producing at least 120 million per day … to use the much abused autoextremist phrase: aintgonnahappen.

    And this is driving oil prices.

    We’re inside the largest shift in energy allocation ever experienced, due to the sheer complexity of modern civilization. We have, literally, hundreds of millions of units that need to run every day for things to work, worldwide, and that are dependent upon cheap and easily available petroleum products. And that definitely aintgonnahappen – which means we’ll be seeing some serious changes.

    Don’t you wish your politicians had spent more time preparing for that, and less time trying to micromanage your personal lifestyle?

    BTW – no reason to believe his policies will end up any different, but at least he does tell people the truth. I liked this message, because it shows up the Clinton/McCain holiday gas tax reduction for the stupidity it is:

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