Will Iowans See $5 A Gallon Gas This Summer?

[happyslug]

21. Talked about last week on DU, the problem is HOW this was calculated.

In any January to June period, the price of Gasoline goes up, generally by a set percentage. The reason for this is simple, people buy they last winter heating oil in March or April and with that purchase the oil companies covert from concentrating on making Home Heating Oil to Gasoline.

Now, when oil is refined, so much becomes gasoline, so much diesel and home hearing oil (And so much other types of oil not relevant here). Oil refineries can and do shift how much of each is produced out of any one barrel of Crude oil. After April the switch is from Home Heating oil to Gasoline (After September it is from Gasoline back to Home Heating oil, but given the longer lag time, most people do NOT buy their first oil for the season till November the drop in price of gasoline is slower but just as large).

The Five Dollar a Gallon calculation is based on the present price of Gasoline increased by the normal percentage increase of the price of gasoline from January to June. This would be accurate EXCEPT the price of gasoline has been going up since NOVEMBER do to the fears of a war with Iran. Thus the price of gasoline is ALREADY higher then it should be this time of year.

Now, I expect Gasoline to reach $4 a gallon, but then stall UNLESS one of two things occur, a Major war (such as a War with Iran) involving a major oil producer OR a natural disaster that affects oil production or refining (For example if the West Antarctic Ice Sheet should collapse, production of oil would be minimally affected, mostly off shore production, but given the vast majority of oil refineries worldwide are within the area that would be flooded by such a release of Ice into the ocean, the ability to REFINE the oil would be cut drastically. i.e. $10-20 a gallon for one to three years till we get those refineries re-opened).

Just a Comment on WHY the price of oil will increase and WHY everyone is mentioning $5 a gallon. Please note even the expert who did the calculation did NOT think the price of gasoline will go to $5 a gallon, for the simple reason people will stop buying as the price gets to high, thus he was looking at $4 plus, but if the normal percentage increase between January and June occurs, then it should hit $5 a gallon (and then drop).

Please note another factor the Expert did NOT take into consideration is how mild the winter has been so far, thus the conversion to Gasoline can occur earlier and thus would lead to increase pressure to keep the price of Gasoline DOWN. Even the Expert who did the calculation seems to have understood not only the problem of starting with to high a base price, but with increase gasoline stocks do to earlier conversion to gasoline production.