April 2, 2007 – Experts predict stable oil prices in future

If powersports dealers are looking to rising gasoline prices alone to propel scooter sales, they could be in for a tough time.
While promoting energy efficiency certainly could be a selling point for scooters, oil industry analysts do not foresee a return to the $3-plus gas prices that the country experienced in the wake of Hurricanes Katrina and Rita in fall 2005, which caused many motorists to consider alternative forms of transportation.
In fact, one analyst predicts a slight decrease in gasoline prices during the next three years.
The average U.S. pump price for a gallon of gasoline in mid-March stood at $2.55, an increase of more than 19 cents from last year. According to the Energy Information Administration, prices will rise another 12 cents to peak at $2.67, with a summer driving average of $2.60. If those predictions hold true, the pump price of gasoline will be 20 cents a gallon less than it was at the same time last year.
When the price of gas is adjusted for inflation, it costs no more now than at nearly any time in history to buy a gallon of gas.
“Even with higher prices and adjusted for inflation, we’re nowhere near the high points of 1979-1981,” said Sara Banaszak, senior economist at the American Petroleum Institute, based in Washington, D.C. “We’ve stayed lower over a longer period of time, and we have much cleaner gas than we had back then.”
Those huge signs in front of convenience stores keep gas prices at the forefront of drivers’ minds, Banaszak says, making them more sensitive to fluctuations than, say, increases in the cost of their favorite latte at Starbucks.
The fear of $3-a-gallon gas probably weighs heavy on the minds of motorists, but just before the turn of the century, “gasoline was at the cheapest level ever since the invention of gasoline,” said Severin Borenstein, director of the University of California Energy Institute in Berkeley, Calif. That fact fueled development of the super-sized SUV.
“In the past five to seven years, prices surely are higher, but when compared to the past 20 or 25 years, we’re about at the same level when adjusted for inflation,” Borenstein said, adding that expenditures on gas as a percentage of household income is smaller than it was during the 1980s.
He also has some sobering predictions for the scooter and motorcycle industries. “At current prices, we’re not going to see a move to scooters or high-efficiency vehicles without government assistance,” he said. “Some might consider shying away from the biggest gas guzzlers … but the reality is that scooters and motorcycles are not viewed by most as viable forms of transportation.”
The cries for biofuels, regulations for higher mileage vehicles and tax credits don’t begin until crude prices hit $60 a barrel, says James Williams, energy economist at WTRG Economics in London, Ark. “We’re at the tipping point in terms of pricing,” he said. “A whole bunch of stuff makes sense at $60 a barrel that doesn’t at $30 or $40.”
In mid-March, crude oil prices were in the $57-$58 range, according to the EIA.
Wholesale changes in production or consumption models require at least two years and as many as 10 to make the necessary infrastructure investments to increase oil production, build biofuel facilities, locate new oil sources and sink wells or pass legislation to mandate higher fuel economy for vehicles.
“In the short term, there’s no substitute for oil,” Williams said.
When the barrel price of oil rises by $1, that equates to motorists paying an additional 2.5 cents per gallon at the pump, Borenstein says. While that might not sound like much, an increase of just $5 per barrel brings a per-gallon increase of 12.5 cents — enough for drivers to notice on those big signs.
In addition to fluctuations in world oil markets based on demand and the whims of the Organization of the Petroleum Exporting Countries, refinery capacity in the United States is tight. No new refineries have been built in the country since 1975, so the role that refineries play in the process has become more vital to the overall supply of gasoline.
A significant shift to mixing gasoline with ethanol has also created challenges for suppliers. While significant amounts of gasoline travel through underground pipes from refineries to distributors, ethanol lacks that infrastructure and has to be transported by rail or tanker truck to the distribution point, says Banaszak. Ethanol can result in cleaner burning gasoline but at a higher cost.
“Gas prices lag behind crude oil prices, and crude oil accounts for between 50-56 percent of the purchase price of gasoline,” Banaszak said. “When crude oil prices started going up (in recent months), gas prices still were going down,” so the upward swing appears more dramatic than it actually is.
Unless the country enters a recession in the next few years, Williams predicts that gasoline prices will hover at their current levels. “But if you have to ask me up or down in the next three years, I’ll have to say down — slightly,” Williams said.
The selling points for scooters remain their superior mileage and small ecological footprint when compared with SUVs, especially for taking short trips and use in suburban/urban areas.
“If you give a damn about the environment, buy a scooter,” Williams said. psb

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