As people gas up for the long Memorial Day weekend, there's a nagging fear while they watch the numbers on the pump spin faster than reels on a slot machine: How much is it going to cost the next time?
Most analysts think gasoline will break $4 a gallon as early as next week. And Goldman Sachs is predicting oil will reach $200 a barrel, pushing pump prices beyond $6 a gallon, within a year. Who's to blame?
A day after crude oil prices set new highs of $135.09 in overnight trading and average prices at the pump jumped by nearly 3 cents in 24 hours, everyone from lawmakers in Washington to commodities traders in Tampa were scrambling for answers.
Though U.S. Energy Secretary Samuel Bodman said the government would stop deliveries to the nation's Strategic Petroleum Reserve, as required by recent legislation, he rejected the idea of releasing oil as a way to reduce prices.
The emergency stockpile, now more than 700-million barrels, "is meant to deal with the physical interruption of the flow of oil to our country,'' Bodman told a House panel Thursday. "We don't have that issue today."
What we have instead is a combustible brew that includes a strained world supply, ballooning global demand and a frenzied speculative market. The situation is exacerbated by the dollar's weakness after a flurry of interest rate cuts. Since oil is traded worldwide in dollars, the decline of the dollar makes the commodity cheaper for holders of other currencies and more expensive for the United States.
"The Federal Reserve Board and Ben Bernanke has to bear some responsibility here,'' said Gregg Laskoski, a spokesman for AAA Auto Club South in Tampa. "Refinery output is healthy, and U.S. consumption is expected to be down 1 percent over a year ago. It's just that the price of crude, which accounts for about 75 percent of the price of gasoline, has been on a record run."
James Cordier, president of Liberty Trading Group and OptionSellers.com in Tampa, said when speculators look at the global picture, any cut in consumption by Americans is more than outweighed by the surge in demand overseas. That's why big players like California's pension fund recently announced a tenfold increase of its investment in commodities, Cordier said, only increasing upward pressure on futures prices.
"There's insatiable demand for oil in places like China and India that more than makes up for the fact Americans might carpool a little bit,'' he said. Even a tragedy like the earthquake in China has a ripple effect at the pump, increasing that nation's demand for diesel for generators. Diesel prices are at an all-time high, averaging $4.55 a gallon, up nearly 60 percent from a year ago.
Meanwhile, the Wall Street Journal reported Thursday that an independent energy monitoring group in Paris is preparing to sharply reduce its forecast of world oil supplies. Cordier said he isn't surprised by the suggestion that there will be a growing shortfall between supply and demand. Noting that production in Russia, OPEC nations and Mexico has been on the decline, he said the easiest solution is the one Americans have been unwilling to embrace.
"When are we going to open areas like Alaska and the Gulf of Mexico that we haven't wanted to drill in?" he asked. "When are we going to cry uncle and do it?"
On the flip side are economists who think crude oil prices are in for a correction. "We see many of the essential ingredients for a classic asset bubble," said Edward Morse, chief energy economist at Lehman Brothers. As more investors jump into the futures market, it causes prices to rise, attracting even more investors.
"This phenomenon can be self-fulfilling," Morse said. Ultimately, however, "commodities markets still have a physical aspect to them that must fundamentally balance."
James L. Williams, with WTRG Economics in London, Ark., predicts oil prices are going to have to fall, he just can't predict when.
"Either they'll get so far away from fundamentals they'll crash or they'll be such a drag on the economy that we'll have a full-blown recession,'' he said. "And over the last 30 years, there hasn't been a recession that's not been accompanied by a collapse in oil prices."
Williams has a modest proposal for dealing with the pain at the pump: Stay home.
"Most of us could drive 20 percent less, and that would be the same as increasing world oil production by 2-million barrels a day,'' he said. "That would be enough to drop the price of oil well below $100 (a barrel). But we need to take ownership of the problem."
For people in the tourism industry who cringe at his suggestion, Williams said Florida should try to attract wealthy oil patch workers from Canada. "Their downtime is the spring and summer," he said. "Right now they need a vacation."
Information from wire stories was used in this report. Kris Hundley can be reached at [email protected] or (727) 892-2996.