February 20, 2009

No, it's not your imagination - gas prices really are going up. Why?

Months after soaring fuel prices spurred U.S. drivers to cut back on their driving, demand for gasoline is slowly coming back, helping to push up depressed oil prices.

Demand for gasoline has nudged up above last year's levels for the past couple of weeks, government data released Thursday show. Gas prices have been hovering under $2 a gallon since November, but now that they have been low for a while, consumers might be getting bolder about their gasoline use, analysts say.

[...] The feeble U.S. economy is expected to remain a drag on gas demand and prices. While consumption is firming up, the increase from last year is tiny -- a four-week average of 0.8% last week, despite gasoline prices that are more than $1 lower than during the same period last year. Some energy experts, including the Department of Energy's Energy Information Administration, predict that this year's gasoline demand will be lower than in 2008 overall.

"A return to $4 a gallon is probably not something we're going to see anytime soon," said Tom Bentz, senior energy analyst at BNP Paribas Commodity Futures in New York.

It's bad news for the rest of the world, though:

"The last five years saw the rebirth of the use of oil as a critical instrument of foreign policy by key resource countries, Iran, Russia and Venezuela in particular," said Ed Morse, managing director and chief economist of LCM Research. "With oil and natural gas prices having collapsed, the power of their weapons has been waning rapidly, turning creditor into debtor nations and depriving them of the revenue required to fulfill their international goals."

Just one year ago, the price of oil finished trading at more than $100 a barrel for the first time, fueling speculation about a new era of oil prices. Yesterday, oil finished trading in New York at $39.15 a barrel, and that after surging 13 percent for the day.

The overwhelming cause of the collapse in oil prices has been the faltering world economy, which has fueled the drop in consumption.

Oil use in China, which most forecasters a year ago assumed would be the engine for increasing global demand, has screeched to a halt. Paul Ting, an independent oil analyst, says preliminary estimates suggest that petroleum consumption in China fell more than 6 percent in January compared with the month in 2008. Crude oil imports hit a 14-month low, he said.

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