Ninety Percent of Drivers Expecting Gas Prices to Rise Further

Despite almost a year of continuously rising gas prices, ninety percent of motorists see no end in sight and are expecting prices to continue rising in the coming year, according to a new and exclusive survey from BuyingAdvice.com.

The respondents to the poll say they are far from happy with the current average of $3.50 per gallon average price at the U.S. pumps. Seventy-nine percent of the sample stated that they viewed current gas prices as either “very high” or “astronomical.” According to Department of Energy figures, the average retail price of a gallon of regular gas across the United States in the week ending 4/21/08 was just over $3.50, up 63 cents from a year ago, with prices as high as $4.20 in some states.

A recent Consumer Federation of America poll found that 60 percent of respondents said rising gasoline prices caused them some level of hardship, with 27 percent reporting much hardship. As a result, 45 percent of those surveyed said they were driving less compared with a year earlier.

Classic free market economics would suggest that as prices rose consumers would cut back on gas and suppliers would increase production in response to rising prices.

However, the CFA study found that long commutes to work and lack of easily available mass transit limits consumers’ ability to change their driving patterns quickly in response to the rising prices. But the CFA study did find that consumers intend to take steps in the medium term to reduce their gas consumption. Forty-two percent of respondents said that the next car they purchased would have an average mileage of over 30 miles to the gallon, compared to the current average of 24 mpg.

In response to a similar question in the BuyingAdvice.com poll, 74 percent said that the current level of gas prices would impact their choice when it came to buying their next vehicle. All 2,820 participants in the BuyingAdvice.com poll were drawn from among the over 50,000 new car buyers who request competitive online price quotes from the web site each month. All respondents stated they were within 30 days of purchasing a new vehicle.

One recent impact of the gas prices has been a sharp rise in sales of hybrid vehicles, up 38 percent in March, despite an overall drop in vehicle sales nationwide. Hybrids however, still make up a tiny portion of the vehicles on American roads.

On the supply side, the major world producers have long acted as a cartel through the Organization of Petroleum Exporting Countries, OPEC, to limit supply, maintain high prices and get the maximum return on a limited resource. President Bush has stated that a goal of his recent Middle East trip was to put pressure on suppliers to raise production, in an effort to lower prices.

While much of the price rise is being blamed on higher crude oil prices on world markets, the price is being driven up as much by rising demand worldwide as it is by limited supply, according to experts. According to the DOE, the price of crude oil makes up about 53 percent of the price drivers pay at the pump. However, there are also other factors at work, according to Atlanta-based investment manager Joe Hall.

“Oil is priced in dollars on the world market, but as most of the world does not buy in dollars, when the dollar is weak, the price does not rise to customers thinking, and effectively purchasing, in other currencies,” says Hall.

As the dollar has been dropping against other currencies for some time, the weak dollar has fueled the increase in gas prices to American consumers.

“Also, there is something of a commodities “bubble” currently, which is driving investment money into all commodities. As well as the oil price, there are record prices for wheat, rice, copper and many other commodities. Demand for alternative fuels, such as ethanol, is driving up grain prices,” says Hall.

“The underlying story that is driving these prices up is true, a bit the same as there was an underlying story during the Internet bubble. This time it is that China is urbanizing rapidly and demand for commodities across the world is rising rapidly.

“The reality is that the selling prices are now many times the production costs of the various commodities. For example, the cost of extracting a barrel of oil is somewhere around $20-40 depending on which method is used, against a market price of $118. So my view is that with the world growth slowing, all of these commodity prices are going to fall sharply, taking all of the speculative investment money out with it,” says Hall.

So perhaps there is one potential glimpse of light at the end of the tunnel for motorists, but when that impact will be felt at the pump is the biggest mystery of all.