The Car and Truck Fleet and Leasing Management Magazine

Prices at the Pump Will Soon Reflect Higher Crude Prices

November 12, 2007

WASHINGTON, D.C. --- With crude oil prices spiraling upward, prices at the pump this winter are expected to be unseasonably high.

According to a report authored by Credit Suisse energy analysts Mark Flannery and Nathali Tirado, gasoline consumers will soon see the effects of sky-high crude oil prices. Wholesale prices are now moving upward. If crude prices hold at about $95 a barrel, the analysts predict that consumers will be paying an average of $3.20 per gallon by the end of the year.

Oil reached a record $98.62 a barrel last week as the declining U.S. dollar attracted investors to commodities and after a report showed U.S. stockpiles fell for a third week. Today, however, crude prices fell a little amid reports of a slowing U.S. economy. Bloomberg reported that crude oil for December delivery dipped as much as $1.67, or 1.7 percent, to $94.86 a barrel in after-hours electronic trading on the New York Mercantile Exchange. It was at $95.06 at 1:34 p.m. in London.

According to the U.S. Department of Energy, a number of factors have pushed crude prices up, including strong world economic growth driving growth in oil use, moderate non-Organization of the Petroleum Exporting Countries (OPEC) supply growth, OPEC members’ production decisions, low OPEC spare production capacity, tightness in global commercial inventories, worldwide refining bottlenecks, and ongoing geopolitical risks and concerns about supply availability.

"Strong world economic growth has resulted in strong world oil demand despite higher price levels," the department's Energy Information Administration (EIA) said in a report issued last week. "China, the United States, and the Middle East countries are the main drivers of consumption growth, and China and the United States alone are projected to account for half of world oil consumption growth in 2007 and 2008. The Chinese economy has shown few signs of slowing down, and the economies of oil exporting countries in the Middle East and Russia have also benefited from higher oil revenues, boosting oil consumption."

Moreover, the EIA pointed out, "the decline in the value of the dollar against other currencies supports continued oil consumption growth in foreign countries because oil is traded globally in dollars, and a declining dollar has made the increase in oil prices less severe in foreign currencies."

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