Get used to $4 gas, says report

By Thomas V. Bona

BusinessRockford.com

Mike Moon put $5 worth of gasoline into his car today. That got him 1.2 gallons.

He doesn’t use his car as much anymore, just to get to work or the grocery store. For everything else, he takes the bus.

Moon started doing that late last month, around the time gas hit $4 a gallon in Rockford.

He might have to get used to it.

Illinois gas prices could stay above $4 into fall 2009, based on the latest national projections by the U.S. Energy Information Administration.

In the agency’s monthly forecast, released today, prices were projected to peak nationally in August at $4.15 a gallon, more than 10 cents higher than today’s prices. Rockford is running 8 cents higher than the national average, and Illinois is running 9 cents more.

The energy agency has increased its projections several months in a row, but several analysts see reasons to believe that the peak is in sight.

“The worst may be over, but on the other hand, it’s probably not going to improve a whole lot,” said David Sykuta, executive director of the Illinois Petroleum Council. “That said, you never know. ... We’re in such uncharted territory, I’m not sure any of the normal things are going to play out.”

The latest report cites rising global consumption and little room for increased production as the keys to rising oil prices. But the report also showed that global demand for oil isn’t increasing as fast as previously thought, and U.S. demand is dropping faster than expected.

The decrease in consumption is a steady trend that eventually could bring relief at the pump, said Jim Ritterbusch, president of Ritterbusch & Associates, a Galena-based oil trading advisory firm.

Last summer, EIA predicted that oil demand would increase by 2.2 million barrels in 2008. This month, the predicted increase is only 800,000 barrels, and by the end of the year it could be a negligible hike, Ritterbusch said.

“In my opinion, we’re seeing a very good demand response to higher prices,” he said.
“Even my wife is thinking twice before she runs into town for an errand.”

But for real relief, he said, several things need to happen: a sustained strengthening of the dollar, a long-term decrease in global demand and an increase in oil and alternative-energy production.

Saudi Arabia may increase production, Ritterbusch said, out of fear that high prices will hurt their long-term market share. “The last thing they want to see is ‘demand destruction’ ... where we start shifting to alternative fuels. They don’t want competition for their product.”

Diesel users have slightly better news. The energy agency projects those prices remaining where they are for the next few months as refiner margins are expected to weaken slightly.

Next year, national gas prices could drop to $3.92 a gallon, the report says, almost 50 cents more than last month’s forecast. If that holds, Illinois — with its higher prices — would average at least $4 for the year.

Katrina Payne of Rockford has had to cut down on things she enjoys doing — shopping, eating out, going to the movies — because of gas prices. If they stay above $4, she’ll have to cut more.

“We’ve got to put all our money into gas just to get there and back,” she said.

Contact staff writer Thomas V. Bona at 815-987-1343 or tbona@rrstar.com.