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1 Whats fueling high gas prices on Tue Jun 16, 2009 4:50 pm


What's fueling high gas prices?
Posted Jun 16 2009, 09:50 AM by Catherine Holahan Rating: Filed under: retail, Energy, oil, economy, Exxon
Drivers are shelling out far more to fill their tanks this summer than last winter, despite the severe economic downturn. And there's likely more pain to come at the pump.

Gasoline prices have risen sharply in the past month. This week, the average price for a gallon rose to $2.67, according to automotive group AAA. That's up more than 35% since December 2008.

To be sure, gas prices are still far less than consumers paid last summer. Oil prices hit a record high of $147 per barrel on July 11, 2008, pushing the average price of regular gasoline to $4.11. But the price of crude has soared in recent weeks. Prices jumped past $72 a barrel late last week, though they fell slightly on Monday as the dollar strengthened. (A stronger dollar reduces the desire to buy commodities as a hedge against inflation.)

Speculation shares some of the blame for price hikes
The recent gasoline price increases are perhaps more difficult for consumers to bear than even last summer's soaring prices. Unlike last July's spike -- which was fueled by increasing demand due to global economic growth, as well as speculation that the good economic times would continue - this year's increase is largely due to anticipation that the worst of the recession is over and that the economy will pick up. Unfortunately for many Americans and businesses, their personal fortunes have not improved along with investors' economic outlook, leaving them ill-prepared to pay higher prices.

Talk back: Will high gas prices kill the recovery?

"Investors are feeling confident that we are going to come out of this recession and do so soon... and we are seeing a lot of cash flow back into the commodities markets," said Troy Green, AAA national spokesman. "So that is the primary reason that you are seeing the price of oil climb as significantly as it has over the past four weeks. It's not as if you are seeing increased demand [for oil and gasoline] domestically."

Demand for gas is still depressed

Demand for gasoline is still depressed due to the economy. Gross Domestic Product decreased 5.7% in the first quarter of 2009 and is expected to decline again this quarter. Unemployment is still climbing, despite the rate of layoffs slowing in recent weeks. About 9.4% of Americans - about 14.5 million people -- are unemployed, according to the most recent Labor Department statistics, released June 5. That rate rises to 16.4% if all the recently laid-off workers who have taken temporary part-time jobs are included. Those people are no longer commuting to work and are unlikely to be taking long road-trip vacations.

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