Tickling Threes Redux - Gas Prices On Fire Again

By Dr. Duru written for One-Twenty

April 16, 2006


Two months ago, I claimed that the Fed was trying to talk and nudge resource prices down. They have clearly met their match. In particular, oil continues climbing and gas prices across America are reaching for three dollars a gallon. We last saw this in August. Back then, I wondered aloud whether Americans would finally start putting on the brakes on gasoline consumption. We did not. And when prices slowly came back down, it gave us a false sense of comfort that we had seen the top. Now, it is only mid-April, no hurricanes in sight until at least two more months, and gas prices are already back at Katrina-like levels. Even as folks gripe again, few are doing anything to seriously curb gas consumption. We must truly stand aside in amazement at how much money still seems to be slushing through the American economy - it is still able to afford higher and higher prices of all manner of essentials.

Anyway, The USAToday published a good article explaining why and how gas prices got back to these levels. It is called "Several factors converge for higher gas costs." I not only found it informative on the gas situation, but I also noted the apparent continued lack of alarm about gas prices as expressed by folks who should be "in the know." We generally seem to feel that gas prices are reaching tops and will come back down soon. No need to act now. And yet, pundits one-by-one are finally becoming convinced that $70 oil is more likely than $50 oil. Of course, they are quite late to the game since we are just about at $70 now. But even more interesting then are the folks that are slowly getting converted to the $100 oil thesis - at least in the worst case scenario with global political instability threatening to take many important oil fields off-line. I will never forget Barron's Abelson blurting out that Chevron's 2005 high-priced purchase of Unocal marked a peak in oil. Puhleeze.... And whenever I note another pundit claiming that high oil prices are not supported by the fundamentals, etc... I mark another point for the $100 thesis! Sure - if world peace suddenly breaks out, or a recession consumes the globe, oil prices will crater. But until then, watch oil keep a-climbing. (Read the USAToday article for more). Time will sure tell.

In the meantime, be careful out there...and ride a bike or take some public transportation for goodness sakes!

DrDuru, 2006