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Economist: $2.50/Gallon for Gas Probably as Low as It'll Get

Posted August 30, 2007

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— Cheaper gas could translate into crowded roads this holiday weekend.

AAA predicts more than 34 million people will travel 50 miles or more from home. The majority, 29 million, will be driving.

The national average for regular gas was $2.75 a gallon Thursday. In the Triangle, it was $2.67, down 12 cents from last year. In the mountains, drivers paid about $2.70, while drivers in Wilmington paid $2.67.

In September 2005, the national average peaked around $3.13 after Hurricane Katrina. Many drivers blamed the storms for the sharp spike.

No matter who or what was to blame for the wild swings in gas prices, it's the regular guy who feels the pain at the pump.

“If this gas would come down, I’d be a lot happier. But it keeps fluctuating up and down,” said Charles Beasley. “It don’t never stay the same.”

One economist said don’t blame Katrina.

“If you want a single answer for why gas prices are much higher now than they were 10 years ago, it’s really world economic growth,” said N.C. State economist Mike Walden.

As we continue to use the same amount of oil here in the U.S., worldwide demand has skyrocketed, especially in China and India, Walden said. Statistics show prices were already increasing before Katrina, and we're continuing to feel the impact.

Despite the price uncertainty, drivers said they are hopeful.

“I wish it would at least come down to maybe one-something,” said Maggie Jones. “That would be more comfortable, especially for us old people.”

“I think the average person should probably think, you know, $2.50 a gallon is probably as low as it's going to get in the near future. It'll probably go higher,” Walden said.

With all the talk of who sets the price and where they set it, one gas station manager said his method is pretty simple. He simply looks across the street and sets his price one cent lower than his competitor.

Economists say U.S. gas consumption increased more than two percent a year during the 1990s. So far this decade, consumption is up one percent.

Over the years, several factors have contributed to price jumps at the pumps. Most spikes occur at the start of a war, and then prices retreat.

The biggest spike occurred in September 2005 at about the time Hurricane Katrina struck the Gulf Coast. Prices have not dropped below $2 a gallon since.


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  • ljcs357 Sep 1, 2007

    To the economist...KMA!!!...
    We'll all realize that the gas prices are as low as they're going to get as soon as the price starts going back up.

  • testing2005 Aug 31, 2007

    Remember year or 2 ago, in Raleigh, Kangaroo/BP started selling gas for much cheaper than other stations and their explanation was - we can afford to sell it for wholesale prices. BP is huge in Europe and they were selling gas for over $4 per gallon, when we were still below $2.
    Other oil companies went to court and rulling was, that BP can't sell us gas lower than wholesale prices. Dump that rule and let the market truely wipe out all GREEDY oil companies or show them, that we decide how much we are paying for gas.

  • saturn5 Aug 31, 2007

    TruthBKnown, "When I saw this article, I could barely wait to get in here and see all the posts by people who know nothing about simple economics blaming Bush and the republicans for the high gas prices.

    It's called supply and demand. "

    Your simplistic view is part of the problem. The oil and gas industry is not "simiple" economics. Look up the word "oligopoly" and how it can affect commodity trading and futures prices and you'll see how the market has been artificially inflated.

    Gasoline is one of the few commodities that you can make more money by producing less. OPEC production restrictions artificially restrict the flow. Companies keep refinery capacity at a bare minimum for the same reason.

    For "simple supply and demand" to work, there has to be an alternative product. People have to have the option of substituting something else or going without. That's just not an option, except in a very limited way by conservation.

  • testing2005 Aug 31, 2007

    Nancy, I had exactly the same question. My husband drove the truck to work (250 miles weekly) burning 16 mpg. Before we bought Honda Civic Hybrid I sat down and did the calculation comparing 48 mpg for the same milage. Kelly Blue Book states that Hybrid w/navigation costs $24K, without $22K. Taking monthly savings and adding 3% inflation - 5 years would save $13K on gas alone (yearly $2500 difference between 16mpg and 48mpg) That is 1/2 of monthly car payment (5 year loan). That calculation is based on about $2.70 per gallon assuming it will not be changed. Which we know it will never happen.

    After we bought the car, my husband started avoiding highways and he can get up to 65-70 mpg.

  • Here kitty kitty Aug 31, 2007

    Just paid either $2.67 or $2.77 in K'dale -- I really can't remember! Thank goodness I just transferred to a new job and cut my commute from 50 miles per day to about 15. I'll be saving about $150/mo.in gas money!

  • wildervb Aug 31, 2007

    Most likely a Federal Tax, but it could be State or a mixture of both, (50/50 split).

    Either way the reasons are as I stated below. Not saying I like paying more for my gasoline, but I truely do see this as a major threat to our economy.

  • Nancy Aug 31, 2007

    wildervb - I asked you a question about your proposal but I guess since it scrolled off the first page you missed it?

  • Nancy Aug 31, 2007

    "The market is full of cars that burn 40-60 mpg, so stop complaining and get rid of the drain of your pocket."

    Sure, they do. Now let me ask you how many people can dump those gas guzzlers and afford to replace them?

    further, what is the break even point (years/miles/cost of car/cost of gas) for investing in a new vehicle that gets better gas mileage?

    Given the price of some of the hybrids, the breakeven is long after the car is paid off. So, while the immediate reduction in cost of buying gas is there, it's supplanted with the high cost of the hybrid and therefore, no financial gain is realized for several years at best.

    Lots of factors to consider.

  • wildervb Aug 31, 2007

    I'm not complaining about the price of gasoline, though it is a shame to see so much money sent to foreign nations, especially our Arab friends.

    Raising the gas tax will ensure that the money stays in this country, it would spur conservation and new technology.

    There are two approaches that have been suggested, one would be to offset other taxes when the gasoline tax is raised, the other would be to use the additional revenue to pay for new technology. Either way the money stays in our economy so there would be no net loss of money.

    I know of course this is unpopular, but as I see it, the biggest threat to our security, to our way of life is our addiction to oil, a limited resource that we need to import simply because we've depleted most of our domestic supply over the last 100 years.

  • Obscurite Aug 31, 2007

    "I love to hear people complaining about gas prices and at the same time driving SUVs or other cars that burn 15-25 mpg."

    My prious gets 50 mpg.