Agency predicts gas will stay above $4 a gallon until fall 2009

By Thomas V. Bona

BusinessRockford.com

There won’t be any quick relief at the pump, according to a government report released today.

Gas prices could stay “well above” $4 a gallon the rest of the year and not drop below that mark until fall 2009, the U.S. Energy Information Administration reported.

In its monthly energy outlook, the agency gave a slightly more pessimistic report than it did in June, predicting that gas prices would average $3.84 a gallon nationally for the year, up 6 cents from last projection, and that prices would average $4.06 a gallon in 2009, up 14 cents.

Prices in the Rockford metro area would be higher. Right now, the Rockford area averages a record of almost $4.17 a gallon, 6 cents above the national average, according to AAA’s fuelgaugereport.com.

Prices are projected to peak at almost $4.25 nationally in November. But the EIA has unsuccessfully predicted an earlier, lower peak the past few months.

“Given the wild market, it’s hard to pin things down exactly,” said EIA economist Neil Gamson. “Eventually, new global supplies should start kicking in to ease pressure somewhat.”

Saudi Arabia plans to raise oil production to its highest level in 27 years this month. Also, the EIA projects that global surplus oil production capacity could increase next year to its highest level in more than five years. That’s why it continues to project some small relief next year.

At least one analyst thinks the EIA is conservative in its predictions — making it late to both the upswing and downswing in prices.

“We may actually see some of these numbers ease off a little bit,” said Phil Flynn, an energy analyst for Alaron Trading in Chicago. “I think we’re going to see lower demand from China, lower demand from India. I think these higher prices are going to take their toll and you’re seeing that already.”

Oil prices dropped more than $5 a barrel today and more than $9 this week. The Associated Press reported that traders were selling to profit from last week’s highs, but prices also dipped over concerns of a global economic slowdown.

But that doesn’t mean gas prices will go down immediately.

Retailers are operating at very tight margins, making only a dime on every gallon of gas they sell, said Bill Fleischli, executive vice president of the Illinois Petroleum Marketers Association/Illinois Association of Convenience Stores.

When oil prices jump, gas prices can’t keep up because such a spike would scare off customers. Instead, gas goes up several days in a row, meaning a loss of profit for retailers. When gas doesn’t go back down right away, it’s because retailers are catching up, Fleischli said.

The crunch is causing some independent stations in Illinois to shut down, he said.

“If you’ve got an 8,000-gallon delivery, that’s a $30,000 investment and you’re only making $800,” he said. “You could probably put that money in the bank and make more money off it.”

Staff writer Thomas V. Bona may be contacted at 815-987-1343 or tbona@rrstar.com.

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A moving target
The U.S. Energy Information Administration projects national gas prices every month, but hasn’t been able to keep up with the recent runup:

February prediction: Average $3.07 a gallon for the year. Prices hit $3.24 in March.

March prediction: Spring peak of $3.50 a gallon. Gas blew past $3.77 in May.

April prediction: June peak of $3.60.

May prediction: June peak of $3.73. Prices hit $4.05 in June and keep going up.

June prediction: August peak of $4.15 a gallon. Now predicts $4.22 in August; $4.25 in November.

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