Improved Economy, More Drivers Will Push Gas Above $3 per Gallon


Even as much of the nation has been holed up at home because of the recent storms, gasoline prices have continued to rise. Expect them to continue to go up above $3.00 per gallon into spring and summer, as demand increases with warming temperatures and an improving global economy.

On Monday, the Energy Information Administration reported the national average for a gallon of regular gasoline reached $2.702 per gallon, up 4.7 cents in just the last week alone. Over the last year, the price of a gallon has increased 76.8 cents, even though the economy has struggled. With spring right around the corner, prices are expected to continue to move higher however, even though Americans drove fewer total miles last year than in 2004 -- a peak year -- for the second year in a row.

Americans have cut down on driving in the last two years, but there's been no effect on gasoline prices. What's going on? Crude oil prices haven't stayed low in the face of lackluster demand and a sluggish economy. A year ago, oil prices were in the $40-range as the economy struggled through the Great Recession. On Monday, however, oil closed at $78.77 cents, nearly twice the price it was last year. That means oil prices doubled and gas prices increased 76 cents in one of the worst economic environments in history.

"There is no legitimate fundamental reason for higher prices, but it is March 1st, so we have to expect to see them," Peter Beutel of Cameron Hanover wrote in his energy report on Monday, according to the Associated Press.

There is a seasonal expectation that gasoline prices should rise as more people are expected to begin driving as temperatures warm up. But the current price increases are being driven more on the expectation of economies heating up than on drivers revving up.

"There are a lot of expectations about an improving US and global economy," says Toon VanBeeck senior industry analyst for IBISWorld. On Friday, oil jumped 2.4% when the commerce department announced U.S. gross domestic production rose by 5.9% -- the most in six years. "There's a lot more confidence in the overall economic environment and this pushed the demand projections and futures toward higher gas prices."

VanBeeck also believes oil companies are doing whatever they need to do to keep oil prices high. "They need oil to be above a certain mark for it to be financially profitable for them. Back a year ago it really wasn't at that level," he said.

IBISWorld expects oil prices and gasoline prices to continue to remain high as demand during the summer increases and global economic conditions improve.