$4 A Gallon Gas Prices: Who's To Blame?

Apr 21, 2011

Gasoline prices are closing in on $4 a gallon. Department of Energy data show the average price for regular gas in the U.S. is $3.84 per gallon. That's 98 cents higher than a year ago, and just an "average." In California, the average price is $4.20 per gallon.

It's tempting to blame speculators for the price run-up. In March, U.S. Attorney General Eric Holder established a task force to investigate potential fraud in energy markets.

So far, it's "clear that there are lawful reasons for increases in gas prices, given supply and demand," Holder says in a statement.

It's also tempting to blame the falling value of the dollar for rising oil prices. After all, oil trades in dollars and since January the U.S. currency is down about 10 percent against the euro.

But Tom Kloza, chief oil analyst with the Oil Price Information Service, says it's more complicated than just that. Trouble in the Middle East is still spooking markets, and investors want to buy oil.

"There's a lot of money that's chasing commodities," Kloza says. "And among the money funds that are chasing commodities, the favorite commodity right now is oil."

The more money that chases a commodity, according to economics 101, the more prices will rise. Kloza says you can add to that a seasonal phenomenon.

"The market always gets buzzed in the spring," he says. "Sometimes — and I think this may be one of those years — it gets a little bit sloppy drunk."

Right now, Kloza considers anything above $4 a gallon "sloppy drunk." He says that kind of behavior has consequences.

"We'll see prices correct or ease back a little bit and we'll spend a driving season where we pay something between $3.25 and $3.75 for gasoline," predicts Kloza.

Declining consumer demand could make that prediction a reality.

"Over the last month, the country has pumped about 2.1 percent less gas than a year ago," says Michael McNamara, vice president at MasterCard SpendingPulse. His business tracks purchases made with credit cards, cash and checks.

McNamara says demand started to suffer when gas rose above $3.25 per gallon in February.

"Especially going into weekends — people tend to cut back a little bit more on Saturday pumping as opposed to commuting traffic on Mondays and Tuesdays," McNamara says.

There's other evidence that drivers are paying very close attention to gasoline prices these days. Todd Hendrix says his phone is ringing a lot. He owns Hendrix Industrial Gastrux in Wauconda, Ill. The small business installs kits to convert gasoline-powered vehicles to natural gas.

Natural gas prices have remained steady recently. When people learn they can save 30 percent or more by burning natural gas, they start bugging Hendrix.

"We spend a lot of time trying to explain to them why we can't convert their Volkswagen or their BMW or their Mercedes-Benz or something like that," says Hendrix.

Because of federal regulations, Hendrix says he can't convert just any car that comes in. So he focuses on fleets that put a lot of mileage on their vehicles.

It costs $10,800 to convert a Ford Crown Victoria at Hendrix's shop. But with government incentives and natural gas at $2.40 per gallon, Hendrix says a fleet manager can pay for a converter kit and start saving money in just a few months. Copyright 2011 National Public Radio. To see more, visit http://www.npr.org/.