Wes Moss: Could gas really hit $5 a gallon?

Certified financial planner Wes Moss provides personal finance advice and accessible investment strategies. His guest post appears here weekly.

Wes Moss hosts 'Money Matters' Sunday mornings on AM750 and 95.5FM News/Talk WSB

Wes Moss hosts 'Money Matters' Sunday mornings on AM750 and 95.5FM News/Talk WSB

Is gas really going to cost $5 per gallon this summer? The media seems to think so, offering up a steady stream of headlines like, “Experts predict gas prices to hit $5 a gallon” and “$5 a gallon? Analysts say it could happen.”

$5 gas would have serious ramifications not only for family budgets but also for economic recovery here in the U.S. But I don’t think it’s going to happen in 2012. Gas prices will almost certainly rise as they catch up with the recent upward drift of oil prices. But getting to $5 a gallon in Georgia would mean a 46 percent rise in prices from the current level. Based on recent history, that’s unlikely.

Between late 2006 and mid-2008, oil prices rose from around $50 per barrel to $145. Despite that 190 percent surge, gas prices during the same period rose just 86 percent — from $2.20 to about $4.10. Based on that, oil prices would have to rise from their current $100 to more than $145 and then stay there for more than a month before we see $5 gas.

Of course, if something goes terribly wrong in the Middle East, all bets are off.

Iran has threatened to close the Straits of Hormuz if the U.S. and European Union implement a financial embargo to force Iran to drop its nuclear weapons program. More than 17 million barrels of oil pass through those straits daily — 20 percent of the world supply. The West couldn’t allow a prolonged closure of that vital waterway and would be willing to take military action to re-open it.

Again, I don’t think that will happen.

The Iranian government funds half of its operating budget from oil sales, and losing that revenue would send Iran into a tailspin. Also, a spike in oil prices would be another blow to the struggling EU economy. The diplomats will certainly devise a way to avoid this potential mutual disaster.

Supply and demand will also kick in. History shows when gas climbs over the $4 mark, Americans change their behavior. They carpool, avoid driving vacations, and switch to more fuel-efficient cars. This phenomenon is called demand destruction. In addition, consumers who pay $4 for gas are forced to cut spending in other areas, which is bad for the economy. The economy then slows down, which leads to even lower demand for gas, which finally results in… lower prices for gasoline.

Could we see $5 in some cities this summer if things turn ugly in Iran? Sure. But I think it’s more likely that we’ll continue to hover in the $3.50 to $3.75 range.

What would you do if gas hit $5?

– By Wes Moss, for Atlanta Bargain Hunter

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33 comments Add your comment

Seville Barber

January 30th, 2012
6:15 am

I believe it was September 2008, Hurricane Ike or Katrina caused gas prices to go from the upper $2 range to over $4. So there is precedent for such a drastic rise.

I expect $5 gas this summer

Real American

January 30th, 2012
6:50 am

If you leave it to the speculators it will rise to more than that.

nelsonh

January 30th, 2012
7:05 am

$5.00 gas, a 20 gallon tank $100.00. Now there is a proposal in Congress to raise the minimum wage to approximately $9.00, a 40 hr. week equals $360.00. now subtract social security withdraw,$50.00, subtract income tax $50.00,now subtract$100.00 for groceriessubtract $100.00 housing expense, rent or payment. subtract $100.00 for gas. You are running $50.00 behind.

RedNeck Rick

January 30th, 2012
7:07 am

And the Keystone XL won’t do a damn thing to help with the U.S. supply of gas any time soon. It is a dirty oil that they are pulling out of the group in Canada, suitable for only 3rd world nations, unless it is modifed syntheticly. Could it free up oil for the rest of the world? Perhaps, but not likely, and definitely not any time soon.

Scoots Randolph

January 30th, 2012
7:08 am

If you do most of your driving for work/shopping within 5 to 10 miles of home, consider a scooter for most of your transportation needs. 70+ MPG on a single gallon. No insurance required, it’s fun, and you get much better value for money. But *not* a cheap Chinese scooter off an auction site or classifieds. Research the awesome scooter shops here in Atlanta and check them out. Disclaimer: if you’ve got three kids, run soccer-mom duty, or drive 30 miles each way to work, of course I’m not suggesting you get a scooter. I’m talking to the people who drive one person to a car (or truck) the same way each day. And I see loads of people like that on my commute. Do you really use all that car you bought every day? If not, think about it.

Dumb Americans

January 30th, 2012
7:11 am

Going to Iraq and wasting billions of dollars, thousands of dead and maimed troops was going to stabilize this. That worked well, maybe we can have a second take with Iran.

We have enough oil for the foreseeable future if we drill and keep it here. We can also make much more efficient cars that get much better mileage and even use other fuels – and not battery nonsense. The issue is with the corporations and big biz, not crapcan countries. We can snuff those “people” easily by handlling things right here. This isn’t a “can’t” situation – is is a “won’t” situation.

Follow the money – and it doesn’t matter who is in office – business owns politics and money owns them all. Get ready for at least 4.50 a gallon by Memorial Day – how appropriate.

Ronin

January 30th, 2012
7:22 am

IF gas reached $5.00 per gallon, short term it would be painful, long term it would pay huge dividends. At $5.00, people might actually march on Washington with pitchforks and torches and and demand that Congress allow more drilling and exploration of domestic crude and shale deposits. It’s past time that we stop sending our currency to people that are only our allies for business purposes.

Grow the oil supply domestically and be able to pay $2.00 per gallon,or maintain our current dependency and watch oil and the stock market rise and fall based on foreign government policies that you have no control over.

Rob in the Mtns

January 30th, 2012
8:10 am

This same “gloom and doom” prediction from “retired oil executives” hit the media last year. What happened? NOTHING! Regular gas actually hit $2.99 in my home town.The writer is correct in saying that only in worst case scenarios will the $5 threshold be breached and the odds are actually against it.

erik

January 30th, 2012
8:19 am

I will be loosing even more weight.
I am already on the CBFGBG (Can’t Afford Food Gotta Buy Gas)Diet.
I’ll switch to 4-10 hour days 2 save 2 gallons a week. I’ll not eat out or go anywhere for fun. My car gets 25 MPG and I won’t buy a new car as I can’t afford one. Have not had a salary increase in over 5 years so something will soon burst. Credit Cards won’t get paid. Heat and AC will be turned off. children will go without clothes, toys or any extras.

Monday

January 30th, 2012
8:37 am

There is NO WAY IN HELL I’m driving a scooter in Atlanta traffic. I hardly feel safe in my SUV with all the crazy drivers out there. At least once a day, some idiot pulls out in front of me forcing me to slam on my brakes to avoid hitting them.

I’m leaning towards working from home a couple days a week.

Michael

January 30th, 2012
8:45 am

You can’t safely ride a scooter unless everyone rides a scooter.

Nick

January 30th, 2012
8:50 am

Over here in Europe we pay 7$/gallon (1,4 euro a liter at 1,32 times 3,78 liters to the gallon)

Will the last Democrat in Georgia please turn off the lights.....

January 30th, 2012
9:15 am

“What would you do if gas hit $5?”

I’d ride one of the many numerous mass transit options that are available here in Atlanta, because as we all know, Atlanta has one of the best of mass transit and public transportation systems on the entire planet.

It’s reassuring to know that Atlanta and the State of Georgia have had all these many years of growth to prepare for an era of continued high gas prices by building out our mass transit system. Commuter rail that parallels every major freeway spoke in and out of town, complimented by high-frequency commuter bus service on every major freeway spoke in and out of town, highly-dependable, safe and secure local bus, subway, light rail and streetcar service in town.

It’s nice to know that in no way is Atlanta vastly overdependent on an increasingly undersized and outdated freeway and surface road network and Atlantans have other options than to sit in crippling traffic everyday and that we are well-prepared to withstand any extended shocks to the local, national and world economy with our well-planned and very well thought out multimodal transportation system.

It’s times like these that truly make me glad to be an Atlantan, living in a city with the number one public transportation system in North America, one of the top ten on the planet in a state that leads the nation in job creation and level of educational attainment.

I love Atlanta!

Will the last Democrat in Georgia please turn off the lights.....

January 30th, 2012
9:17 am

Atlanta’s public transportation system is so built-out that I don’t even have to drive. MARTA goes everywhere! WOO-HOO!

williebkind

January 30th, 2012
9:25 am

Well you can thank the progressive liberals for the cost of gasoline. They have stated in the past we should pay more or as much as Europe. No drilling because we are going green! What a joke! The liberals have caused the rise in price of gasoline with this idiotic ideology.

williebkind

January 30th, 2012
9:27 am

Nick

January 30th, 2012
8:50 am
How many oil fields are located in Europe? So you think if someone has oil they should sell it to you before they take care of their country?

williebkind

January 30th, 2012
9:29 am

Will the last Democrat in Georgia please turn off the lights…..

January 30th, 2012
9:15 am
What powers the public transportation? solar panels?

Mr. Obvious

January 30th, 2012
9:49 am

Now would be an ideal time to buy some stock in Exxon or even BP.

Mr. Obvious

January 30th, 2012
9:50 am

(Of course, any profit derived for owning said stocks will be used to pay of your gas at the pump.)

Selah.

Dumb Americans

January 30th, 2012
10:34 am

munchin

January 30th, 2012
12:47 pm

First of all we get most of our oil not from the Middle east but Venezula, Canada especially Canada. Oil sands does not make a difference since we have been getting it there for a while. The problem is politicians making national parks out of oil reserves in the US and not allowing safe off shore drilling,

John Ellison

January 30th, 2012
12:55 pm

Why are we outsourcing energy jobs to the middle east when we need the jobs?

Jack P

January 30th, 2012
1:03 pm

If gas reaches $5/gal. this summer, Obama is doomed to the list of former Presidents for sure. He will take his place as the worst President in history barely nosing out Carter for this dubious honor.

Mason

January 30th, 2012
1:27 pm

Doesn’t the US have like a 40 year stock of gas incase of an event like this one. You would think that during the current state they could use like 5 years of the stock and charge like a buck fifty?

Federal Reserve fault

January 30th, 2012
1:35 pm

There are certainly supply issues at work. No doubt the entire work is concerned that the bloodthirsty neocons in our government (including Obama) are just itching to attack, invade, occupy, and destroy Iran on behalf of Israel. This will certainly result in gas of at least $5 a gallon if not more like $7 – $10. But additionally inflation is a monetary phenomena based soley on the quantity of money in circulation. While the dollar may currently be doing well against the other worthless, fiat currencies of the world (all of them basically), the quantity of money in circulation, thanks to the Federal Reserve, has gone up astronomically. This ultimately has the effect of raising prices as the extra money chases after a limited supply of goods and services.

So as always, the blame lies with government. They are either threatening to start WW3 or destroying the currency, but doing whatever they can to destroy the middle class and the economy through increases in the cost of fuel. And of course their friends in the oil industry will make a handsome profit along the way. One need only look at the campaign contributions to the likes of Obama, Romney, and Newt to see where the money is flowing from.

Bacchus

January 30th, 2012
2:19 pm

A scooter in metro Atlanta? Have you seen the way people drive their trucks, SUVs and vans that are the size of houses and feature 15+ cupholders, “cubbies”, Blue teeth, On*Star, navi, DVD players, iCrap hookups, and other useless junk that distracts from safe driving?

I would consider it if that was what everyone on the road was driving, like in Vietnam or India or somewhere. But not here– unless I had my affairs in order and had bought a cemetery plot and a box for my remains after getting run over by someone who was late to Zoomba class.

Suzanne

January 30th, 2012
2:33 pm

I expect to see gas near $4.00 a gallon by summer. I have already cut back by almost half my driving to save money. I will continue to cut my spending to keep within budget. It’s sad that with no salary increase in FIVE years, I cannot really assist in boosting the economy. Just treading water.

Nu Kind of Evil!

January 30th, 2012
2:45 pm

We suffer becuase of the greed of money and power hungry people!!

johnr

January 30th, 2012
2:48 pm

Salary increase. We continue to have furlough days and pay cuts

Who Cares?

January 30th, 2012
2:53 pm

Bingo Jack P. I believe this is the plan all along. With President Oh-Bummer in office, holding back business development and growth through his socialist policies and ideals, he’s assuring himself a not too good fate in the “Casa Blanco”. With folks shelling out $5 – $6 per gallon for gas till at least November, everyone will be glad to get rid of him. Is he responsible? Well, how has his relationship been thus far with big business? No drilling, increasing taxes on business, and other socialist ideas, he’ll soon see the strength in free enterprise. Too bad it took this at the expense of struggling working Americans for him to figure this out. Yes, the blame game will get good!

Mark

January 30th, 2012
3:01 pm

@ Real American

January 30th, 2012
6:50 am

If you leave it to the speculators it will rise to more than that.

I couldn’t agree with you more! The media will continue to hype this like always. Everything in the media these days is to try and keep the consumer worried.

[...] typical seasonal patterns plus political turmoil over Iran. The average price of a gallon of …Wes Moss: Could gas really hit $5 a gallon?Atlanta Journal Constitution (blog)all 3 news [...]

Nick

February 1st, 2012
6:32 am

williebkind

January 30th, 2012
9:27 am

No complaining from my side, just stating the obvious. Still oil prices are more of a psychological issue than a question of supply and demand, plus the unbelievable high amount of taxes added to the net gas price in europe. And yes, there are some oil fields over here, but this cannot be compared to the amount of natural resources of the US. and where there are oil (or gas) fields they mostly cannot be exploited due to ecological constraints. which i think is ok as in the long run we will have to switch to different kinds of energy anyway and by doing so we can turn over some still unspoiled parts of our country to our children.