A little over a month ago, I wrote a column looking at the annual spring increase in gasoline prices. For that column, I interviewed six leading gasoline experts including Trilby Lundberg (Lundberg Survey), Jim Ritterbusch (Ritterbusch and Associates) Mark Routt (Energy Security Analysis Inc.), and Tim Evans (Citigroup Futures Research) about why this happens. Everyone of them agreed that EPA regulations requiring an almost automatic switchover from winter to summer gasoline blends creates a yearly crunch at the refineries that temporarily drive up prices.
All right, fair enough. But then at the end of the column I reported:
What's the bottom line for this year? All the analysts basically agreed that gasoline prices are probably close to their peak for the year and that they will fall soon. Prices may rise again toward the end of the summer, but unless all hell breaks loose-say a war with Iran or gigantic hurricanes assaulting the Gulf coast-gas prices should not exceed $2.75 this year.
$2.75? Ha! The Lundberg Survey is reporting that the average price for a gallon of gasoline is now at a record $3.07.
But are prices at really at record highs? Perhaps not. An analysis from the Cato Institute suggests that when one takes into account inflation and increases in disposable income gasoline is still a bargain compared to the bad old days.
In any case, the Senate is considering a bill that would raise corporate average fuel efficiency standards (CAFE) to 35 miles per gallon by 2020. But there is a much simpler way to encourage energy conservation. As I have previously pointed out:
If our Congressional overlords and environmental activists really think we should drive less and buy more efficient automobiles, then they should ditch the CAFE shell game and have the courage to recommend taxing gasoline at $5 per gallon.
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