A federal report projects gradually rising gas prices in 2011. But $3 gas and volatile prices don't seem to upset consumers.
Gas prices are already bouncing around two-year highs, and the outlook remains grim. A federal report says gas prices are expected to rise gradually into 2011, reaching a national average price of about $3 a gallon for regular.
The U.S. Energy Information Administration estimates that regular gas will sell for an average of $2.88 per gallon this winter, then edge upward. While that might seem at odds with Wednesday's $2.92 per gallon regular, as reported by twincitiesgasprices.com, the government expects gas prices to dip this month before climbing in coming months.
Twin Cities consumers, who seem resigned to today's high and volatile prices, aren't buying less gas or letting gas prices affect their holiday shopping. Many have grown accustomed to prices that already are up more than 30 cents a gallon from a year ago, both nationally and in the Twin Cities.
"Right now it's not a big deal," said Jayme Baden, 30, of St. Paul, while pumping gas at a SuperAmerica station in Golden Valley. "We factor it into our budget."
Eric Elsham, 25, of Minneapolis, agreed.
"I remember when it cost me $100 to fill up the tank on my truck," he said while filling the vehicle. "But now it costs $60. So gas prices won't affect my holiday spending."
What would it take to shake consumers out of their just-have-to-pay-it attitude toward the pump price? Analysts say consumer behavior probably won't change significantly unless gas once again reaches $4 a gallon, and no such price shock is foreseen.
"We saw a tipping point in 2008, when regular gas pushed over $4 a gallon," said Jeff Schuster, an analyst at J.D. Power and Associates in Detroit who forecasts automobile sales. "That caused a shift in people's buying habits, both in the way they drove and in a movement to smaller cars. If gas prices are in the low $3-a-gallon range, I don't expect any major impact on people's habits. The American car driver is used to it now, and just writes it off as 'I have to fill my vehicle, and that's the way it is.'"
Baden is one such driver. "Gas prices are not as bad as they were," she said. "It's not as if gas were almost $4 a gallon."
Ivan Carlson of St. Louis Park says his pain threshold for gas prices is a bit lower.
"If it were $3.50 a gallon I would not be happy at all," he said while pumping gas at the same station.
The price is expected to yo-yo up and down on its way to higher average pump prices. For example, the price of gas is expected to go down in the next couple of weeks because of a recent drop in crude oil prices that takes time to trickle down to the gas pump, said Tancred Lidderdale, a senior economist at the Energy Information Administration, an arm of the U.S. Department of Energy in Washington.
"Over the last year, gas prices have been on an upward trend, driven up by crude oil prices," Lidderdale said. "But within that increase is significant price volatility that's caused by uncertainty about the global economic recovery. Oil prices swing up and down as good news is followed by bad news."
Barrel price of oil hits home
A $1 change in the price of a barrel of crude oil can result in a 2.4-cents-per-gallon change in the price of regular gas, Lidderdale said. As a result, gas prices have fluctuated as the price of crude oil has gyrated: Oil went from about $81 a barrel on Oct. 29 to $88 on Nov. 10; then back to $80 a barrel on Nov. 17 and up again to $89 on Dec. 6. On average, oil is expected to cost $84 a barrel in December, rising to $89 next year, he said.
Volatile gas prices have long been the rule in the Twin Cities, but some believe that the cycle may be dampened by Marathon Oil's October sale of 233 SuperAmerica gas stations, which had enough competitive clout to force other gas stations to match their fluctuating prices.
"Since we started tracking gas prices in 2000, SuperAmerica's pricing strategy created a yo-yo effect for Twin Cities gas prices," said Jason Toews, co-founder of www. twincitiesgasprices.com, which tracks price changes across the metro area. "It's unknown if that pricing strategy will be continued."
Despite the volatility of Twin Cities gas prices, over time they tend to mirror the national average, Toews said. But he thinks those average prices may be moving up faster than the federal government projects. He predicts that Twin Cities winter gas prices will average $2.90 to $3 a gallon for regular, and could go considerably higher by spring.
"If there's no double-dip recession, once the summer driving season hits, the price could go as high as $3.50 a gallon," Toews said.
Steve Alexander • 612-673-4553