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Policy Hub: Macroblog provides concise commentary and analysis on economic topics including monetary policy, macroeconomic developments, inflation, labor economics, and financial issues for a broad audience.

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May 8, 2007

Pump It Up

From Reuters, the unhappy news that you already knew:

U.S. average retail gasoline prices rose to an all-time high over the past two weeks, due to a number of refinery outages, according to the latest nationwide Lundberg survey.

The national average price for self-serve regular unleaded gas was $3.0684 a gallon on May 4, an increase of 19.47 cents per gallon in the past two weeks, according to the survey of about 7,000 gas stations.

The prior all-time record was an average price of $3.0256 per gallon, that was reached on August 11, 2006.

One of the first things you learn in macro class is that these sort of figures can be extremely misleading if you don't adjust for inflation, so kudos to the Reuters folks for this:

However, the current price is 6.4 cents short of the inflation-adjusted high that was reached in March of 1981, at that time regular grade self serve gasoline was $1.35 per gallon, but on an inflation-adjusted basis today that would translate into $3.13 per gallon.

That said, feel free to file current gas prices in the "ouch" category. 

We were certainly warned this was coming, but maybe by now the worst is over?  A ray of hope from the Wall  Street Journal's Energy Roundup:

Crude-oil futures dropped to their lowest level in almost seven weeks and appeared ready to extend their five-session loss of nearly 7%. Traders were betting that U.S. data, due later this week, will reveal ample supplies of crude and little or no decline in product inventories...

John Person, president of, attributed the recent price weakness to “massive hedge-fund liquidation.” He points out that the Commodities Futures Trading Commission report shows non-commercial traders are long by a net 65,000 contracts and commercial traders are net short.

At the same time, he said, “last week’s tensions eased regarding Iran’s nuclear program, and as refineries come back on line, we are expecting gasoline supplies to build. Crude-oil inventories have climbed in recent weeks, so there is plenty of [inventory]. … [And] if refineries do get back up to speed, we will potentially see gasoline builds in the next few weeks.”

That last sentence is a big "if", and Mr. Person does advise you to temper the celebration:

Even so, Person said he doesn’t expect a massive decline in prices or any break below $58.

Hey, we can dream can't we?

UPDATE: The Energy Information Administration's update provided no comfort:

Continuing problems for refineries in the United States and abroad, combined with strong global gasoline demand, have raised our projected average summer gasoline price by 14 cents per gallon from our last Outlook.  Retail regular grade motor gasoline prices are now projected to average $2.95 per gallon this summer compared with the $2.84 per gallon average of last summer.   During the summer season, the average monthly gasoline pump price is projected to peak at $3.01 per gallon in May and again in August, compared with $2.98 per gallon last July.