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Gasoline prices spike in 2013

Gasoline Pump
Gasoline Pump

Gasoline prices are climbing quickly according to a Lundberg Survey released on Sunday, February 24, 2013.

Nationwide, the price per gallon has increased 20 cents in the past two weeks and the average price per gallon is now $3.80 for regular unleaded. Midgrade unleaded gasoline is averaging $3.95 per gallon and premium unleaded is selling for an average of $4.09 per gallon. Diesel fuel is up as well, selling for an average price of $4.17 per gallon.

Looking at individual cities in the 48 contiguous states, Billings, Montana has the lowest average price per gallon at $3.23. At the high end is Los Angeles with an average price of $4.29. California also has the overall highest average gasoline prices of any state, at $4.18 per gallon.

There is much debate over the cause of the sudden increase in fuel prices, but it appears that limited production is not the cause. According to data supplied by the U.S. Energy Information Administration, the U.S. now produces more than half the oil it consumes, pumping close to 7 million barrels each day. The past year has witnessed a steep increase in drilling, with an additional 800,000 domestic barrels produced in 2012 compared to 2011. And the agency projects that, by December 2014, production will reach 8.15 million barrels.

So, with all of this increased production combined with stagnant winter season demand, why hasn’t the price of gasoline fallen? A good explanation is financial speculation. Banks, hedge funds, futures traders, and others are speculating on future oil prices by purchasing contracts with the sole intent of making money. Unlike airline companies and others that actually use the fuel and purchase forward contracts with the intent of taking delivery of the oil, these speculators have no interest or need in the oil. They are speculating with the pure intent of making money and nothing more.

Some have suggested regulating the market and limiting how much oil can be controlled by any single trader, but this will be difficult to accomplish. The Obama administration tried to clamp down on the finance industry as a whole in 2010, but further regulation of the trading industry is still held up in the courts and may not be resolved for years.

Besides financial speculation, there are other factors at play as well. Refiners have switched over to summer blends a little earlier than normal in 2013, and this could have slowed production and pushed prices higher. Then, there is the impact of OPEC nations, which have curtailed supplies in response to weakening worldwide demand.

Whatever the cause, prices at the pump are much higher today than last year at this time and do not show any signs of slowing down. Consumers need to brace for even higher gasoline prices in the coming weeks before any relief is felt.

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