Summer Fuel Price Outlook

Summer Fuel Price Outlook

Last week President Obama announced a plan to begin offshore drilling for oil and natural gas in the Atlantic, along the Gulf of Mexico and near Alaska.

His proposal, which he says will help meet the nation's growing energy needs without further relying on foreign producers or harming the environment, has spurred backlash from both supporters and opponents.

But according to Neil Gamson, an energy fuel price analyst for the U.S. Energy Information Administration (EIA), it'll be a long time before American drivers will see any effects from the new drilling--if it happens at all.

Gas Prices On The Rise
Industry insiders have a pretty good idea of what’s expected in the months ahead: a rise in gas prices. Regular-grade gas prices will average $2.92 per gallon during this summer's driving season (from April 1 to Sept. 30), according to the EIA's April 2010 Short-Term Energy and Summer Fuels Outlook. That's up 48 cents from $2.44 per gallon last summer--and higher than the $2.86 current national average--but nowhere near the $4-and-up prices of July 2008.

In some states, like Alaska and Hawaii, average gas prices will likely exceed $3.50 per gallon this summer, while others (Texas, Oklahoma) will see average highs that don't cross the $3 mark. All told, average annual prices for regular gas will likely reach $2.84 this year, up from $2.35 in 2009, and hit $2.96 by 2011, according to the report. Projected annual average diesel prices per gallon are $2.95 in 2010 and $3.12 in 2011.

State-By-State: What You’re Paying Now

The biggest factor in determining gas prices is the price of crude: It typically makes up between 65% and 70% of the total cost of one gallon of regular gasoline. Taxes contribute about 15% of the cost, distribution and marketing contribute 10%, and refining contributes about 6%.

The Worst-Made Cars On The Road

Crude oil prices act like other commodities and experice wide price swings due to OPEC supply and consumer demand. (The summer season typically increases demand for gasoline--this year an increase of 0.5% is expected over last summer's demand.)

"In general, this summer calls for modest growth in motor gasoline and distillate fuel markets, reflecting the stimulus of moderate economic growth and the constraining effects of higher crude oil and product prices compared with last summer," the report says. "As long as the global economy continues to recover, and the Organization of the Petroleum Exporting Countries remains satisfied with its constrained supply targets, global oil markets should remain in this situation."

Gamson says fuel energy price forecasts can indeed be uncertain. That said, crude will probably average more than $81 per barrel this summer and just under $81 per barrel for the entire year. Last summer, crude prices didn't go above $74 a barrel. (It average $61.66 per barrel for the whole year, a 38.1% decline from the $99.57 average of 2008.) He expects it to cost $85 per barrel by the end of 2011.

How To Get By On Less Gas

Cities in states where distribution and taxes are especially difficult and high, respectively, tend to have higher gas prices. Right now, Honolulu, Anchorage and San Francisco have the highest average gas prices in the nation, at $3.424, $3.382 and $3.147, respectively. On a regional basis, as is often the case, the West Coast has the highest average gas prices, followed by the Rocky Mountain region, the Central Atlantic and the Midwest. The Gulf Coast has the lowest average prices in the region, averaging $2.71 per gallon compared with a national average of $2.82.

Californians and Idahoans, though, do have some options for eking out the most value from every dollar they spend on gas. Christie Hyde, a spokesperson for AAA, says common-sense driving pays off big time.

"The biggest factor in getting better fuel economy is driving conservatively," Hyde says. "You don't have to do really extreme hypermiling things or anything like that that are dangerous. Just coast to a stop; don't rush into the red light and slam on the brake."

The other obvious answer, she says, is to buy a small-engined vehicle. According to a report AAA released last week, the average cost to own and operate a mid-level sedan has risen 4.8% since last year, mostly due to higher gas prices. It costs 56.2 cents per mile to drive a sedan like the Toyota Camry or Ford Fusion--but it costs 43.3 cents to drive a small sedan like the Honda Civic or Nissan Versa. Over 15,000 miles of driving, that's a cost of $8,436 compared to $6,496.

But large sedans and SUVs come out the worst in this tally. According to the AAA report, a 4WD SUV costs 73.9 cents to driver per mile, or $11,085 for one year. Large sedans cost 70.2 cents to drive for a total cost of $10,530 per year. SUVs also depreciate much more than small cars, making them even more expensive to own.

Consumers would do well to note the difference, especially this summer, Hyde says: "So many people when they go to buy a car, all they think about is the sticker price, and there's just so much more to it. You need to consider all of this."