No need for panic at the pump
Gasoline prices almost always rise in the spring, putting an extra strain on family budgets. This year won't be an exception. But motorists shouldn't panic just yet. That's because government forecasters say drivers aren't likely to pay much more than $3 a gallon, on average, during the peak summer driving season. Expectations are that gasoline prices will average $2.84 a gallon this year, up from $2.34 in 2009. It's a modest increase compared with the past few years when oil prices rose and fell sharply. But it reflects the fact that high unemployment, reduced shipping and limited business travel are all keeping a lid on energy demand. Global oil supplies are also on the rise, helping to keep prices under control. For consumers, that's good news. The more gradual the pumpprice increase, the more manageable it is for family budgets, retai l consul tant Howard Davidowitz said. With time to adjust people can de c ide what to do, Davidowitz said. "Maybe they can buy less. Maybe the kids can't have the ice creams anymore." Or maybe people will remain tentative about getting behind the wheel more than is absolutely necessary. Average daily gasoline demand in 2009 was essentially flat from the year before, at 377.5 million gallons. It is expected to remain level in the year ahead, according to Tom Kloza, publisher and chief oil analyst at Oil Price Information Service. Still, economists say even a small bump in gas prices could put a strain on motorists. Gasoline accounts for about 4 percent of the typical family's budget. But consumers tend to pay the increase at the pump instead of driving less. That leaves less to spend on clothing and other discretionary purchases. Sung Won Sohn, an economics professor at California State University, lowered his forecast for U.S. economic growth to 3 percent, from 3.2 percent, because of the anticipated rise in energy costs. "Higher gasoline prices are like a tax that depresses overall consumer spending," he said. A variety of factors determine gas prices. Crude oil plays the biggest part, but taxes, marketing and refining costs can make up 30 percent of the overall price per gallon, according to the U.S. Energy Information Administration. Even so, compared with years past, this spring's run-up in gasoline is forecast to be moderate. If gas averages $3 a gallon nationwide on Memorial Day, that would represent an increase of about 13 percent since the start of the year. That compares with a nearly 50 percent increase in the same period a year ago and 29 percent in 2008. "To get to $3.50 you need crude prices near $120 or $125 per barrel — numbers not in realm of probability in 2010," Kloza said. "$3 is a reasonable number for a peak."