| A Primer on Gasoline Pricing Much of the recent increase in gasoline prices can be blamed on the decision of the Organization of Petroleum Exporting Countries to raise the cost of crude oil, according to industry analysts. Higher prices caused refiners to cut back operations, resulting in a 4 percent drop in supply at a time when demand was increasing. Hence the rise in prices. Much of that demand, says Dan Becker of the Sierra Club's Global Warming and Energy Team, occurred in the United States where "SUVs and other vehicles guzzle gas at increasing rates." U.S. Department of Energy Secretary Bill Richardson says prices will stabilize, but consumers want to know when and at what price. Oil industry consultant Martha Amram of Navigant Consulting Inc. says fluctuations in oil prices are determined by forecasts about future prices. "Uncertainty creates hesitation and lower prices in the future create hesitation," says Amram. "Hence, we do not see oil producers rushing forward to turn on production." Severin Borenstein, director of the University of California (Berkeley) Energy Institute, says futures markets are the best predictors of oil prices. "They're betting their money on it," he says, "and they're telling us that over the next eight months prices should drop about $5 a barrel. That's the best guess out there." Borenstein says the rule of thumb is that for every $1 a barrel of oil drops, the price of gasoline falls 2.4 cents. If oil is selling for $5 a barrel less in December, then the price of gas should drop by 12 cents a gallon six to eight weeks later. Sources: Allen Mesch, Maguire Energy Institute, Edwin L. Cox School of Business, Southern Methodist University This article comes compliments of CNN.com. |