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The Atlanta Fed's macroblog provides commentary on economic topics including monetary policy, macroeconomic developments, financial issues and Southeast regional trends.

Authors for macroblog are Dave Altig and other Atlanta Fed economists.


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May 08, 2007


Pump It Up

From Reuters, the unhappy news that you already knew:

U.S. average retail gasoline prices rose to an all-time high over the past two weeks, due to a number of refinery outages, according to the latest nationwide Lundberg survey.

The national average price for self-serve regular unleaded gas was $3.0684 a gallon on May 4, an increase of 19.47 cents per gallon in the past two weeks, according to the survey of about 7,000 gas stations.

The prior all-time record was an average price of $3.0256 per gallon, that was reached on August 11, 2006.

One of the first things you learn in macro class is that these sort of figures can be extremely misleading if you don't adjust for inflation, so kudos to the Reuters folks for this:

However, the current price is 6.4 cents short of the inflation-adjusted high that was reached in March of 1981, at that time regular grade self serve gasoline was $1.35 per gallon, but on an inflation-adjusted basis today that would translate into $3.13 per gallon.

That said, feel free to file current gas prices in the "ouch" category. 

We were certainly warned this was coming, but maybe by now the worst is over?  A ray of hope from the Wall  Street Journal's Energy Roundup:

Crude-oil futures dropped to their lowest level in almost seven weeks and appeared ready to extend their five-session loss of nearly 7%. Traders were betting that U.S. data, due later this week, will reveal ample supplies of crude and little or no decline in product inventories...

John Person, president of NationalFutures.com, attributed the recent price weakness to “massive hedge-fund liquidation.” He points out that the Commodities Futures Trading Commission report shows non-commercial traders are long by a net 65,000 contracts and commercial traders are net short.

At the same time, he said, “last week’s tensions eased regarding Iran’s nuclear program, and as refineries come back on line, we are expecting gasoline supplies to build. Crude-oil inventories have climbed in recent weeks, so there is plenty of [inventory]. … [And] if refineries do get back up to speed, we will potentially see gasoline builds in the next few weeks.”

That last sentence is a big "if", and Mr. Person does advise you to temper the celebration:

Even so, Person said he doesn’t expect a massive decline in prices or any break below $58.

Hey, we can dream can't we?

UPDATE: The Energy Information Administration's update provided no comfort:

Continuing problems for refineries in the United States and abroad, combined with strong global gasoline demand, have raised our projected average summer gasoline price by 14 cents per gallon from our last Outlook.  Retail regular grade motor gasoline prices are now projected to average $2.95 per gallon this summer compared with the $2.84 per gallon average of last summer.   During the summer season, the average monthly gasoline pump price is projected to peak at $3.01 per gallon in May and again in August, compared with $2.98 per gallon last July.

May 8, 2007 in Energy | Permalink

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Comments

If we don't think, act accordingly & accept responsibly for our actions, what else can we do but dream? Is there NO connection between the policies of our twice-elected GWB & the increases we've seen in oil/gas prices?

Posted by: bailey | May 08, 2007 at 08:11 AM

With the greatest of respect i posit no relationship between the policies of George bush Jr and the steep rise in the price of oil.Succinctly stated the chines and the indians are building modern industrial economiew.it takesa lot of energy to build them And woe to you who ignore the outcome as everything they build(almost) is petrolem intensive.i dont care whoinhabits the white house petroleum is going to cost more in the near term and the forseeable long term.JJJ

Posted by: jjj | May 08, 2007 at 11:51 AM

With the greatest of respect i posit no relationship between the policies of George bush Jr and the steep rise in the price of oil.Succinctly stated the chines and the indians are building modern industrial economiew.it takesa lot of energy to build them And woe to you who ignore the outcome as everything they build(almost) is petrolem intensive.i dont care whoinhabits the white house petroleum is going to cost more in the near term and the forseeable long term.JJJ

Posted by: jjj | May 08, 2007 at 11:52 AM

I sometimes have a bit if a titter if the prices of gas in eth states. here in the UK a gallon of feul is over £5 a gallon, at todays rate that is equivelent to $10 a gallon. yet here in the UK we also have our own reserves.

mark

Posted by: AA Breakdown | May 08, 2007 at 03:29 PM

Nice Mae West title...it wasn't that long ago when oil prices would do something to the likes of Stephen Roach's blood pressure.

Dwindling North Sea reserves, no AA?
But this mention of "refinery outages" to describe the disconnect between crude price and gas pump...
and this... "Traders were betting that U.S. data, due later this week, will reveal ample supplies of crude and little or no decline in product inventories..."
and this...", “last week’s tensions eased regarding Iran’s nuclear program, and as refineries come back on line, we are expecting gasoline supplies to build." (Don't underestimate the tension on my clothes line either while we're at it: shooting with abandon as to why gas prices could be so high with healthy crude inventory.)

The fact that this is not making much news worries the crap out of me. Pump it up. What the hell, this late in the game...is the general feeling of powerlessness.

Posted by: calmo | May 08, 2007 at 10:24 PM

For what it's worth, according the inflation calculator on the BLS website, $1.35 in 1981 has the purrchasing power of $3.05 today, so the $3.06 per gallon is an all-time high....assuming we can believe BLS

Posted by: Mark Lieberman | May 10, 2007 at 08:43 AM

For decades we had excess capacity in the oil refining industry. So it was an unprofitable business and refining margins remained very depressed and no one would build a new refinery. Now we have used up that excess capacity and refiners are finally starting to build margins and become profitable.As a consequence after 20 to 30 years of the spread between crude oil and gas prices being essentially a constant it is now changing.
If we are not careful someone might actually respond to these market signals and build a new refinery.

Posted by: spencer | May 10, 2007 at 12:12 PM

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