Q. Why are gas prices so high right now?
A. The short answer - there are convoluted reasons. For one, crude oil is sold on the futures market, like commodities, so you have that element. So events like the potential eruption with Iran is a threat. There's also the weakness of the U.S. dollar. People seem to forget that a strong dollar keeps commodities like oil and gold down while a weak dollar does just the opposite.
And traditionally, prices are higher through mid-May. Last year, prices in Mississippi averaged about $3.85 in mid-May. We're there now, a little earlier than usual. It is the highest price at this point in the year that we've ever tracked, dating back to the 1970s.
If you take out the "war premium," oil prices should probably be around $80 to $85 a barrel (Oil is trading around $103 a barrel). But if people are willing to pay for it, people will sell it for a premium.
Q. Prices seem to have moderated somewhat, not rising as quickly as they have.
A. We use the U.S. Department of Energy as a guide and they're saying prices should peak around $3.95. In Mississippi, we've always been about 10 cents lower than the national average, so we're about where the peak should be. That doesn't mean we won't go higher, but I think the fear of $4 gas by mid-May is over for now.
Barring any Katrina or Rita-like hurricane and if negotiations continue with Iran over their nuclear policy, I don't think we'll be hitting $4 anytime soon.
I'll remind everyone that last year about mid-May, prices were $3.85 a gallon and people were talking about $4 gas. We had the Arab spring and fears that Saudi Arabia would be next to fall and prices started to jump. But things settled down and at one point, the wholesale price of gas fell 25 cents in an hour and trading had to be stopped.
Q. So why is gas so much more expensive at some stations than others?
A. It's a little-known fact that most companies get their raw gasoline from the same place. Now it's true that branded stations may add a little something to their gas once they get it.
Also, branded stations are often locked into longer-term contracts than independent stations, who can get their gas from anywhere and can move their prices more quickly.