Have Gas Prices Peaked?

By: CBS (Posted by Kion Hudson)
By: CBS (Posted by Kion Hudson)

(CBS)-- Consumers could finally get relief at the pumps. Gas prices may have peaked for the year, according to AAA. Regular gasoline has decreased slightly over the past five days to $3.907 a gallon, after surging 20 percent and topping out on April 4.

Before popping the champagne corks and celebrating lower gas prices, let's remember what caused the spike. The biggest culprit for the rise in prices at the pumps is the $28 rise in crude oil that occurred from $75/barrel in October to $103 today. The reason is that crude oil is the largest contributor to the price at the pumps.

Here's a break down of a $1 at the pump as of January 2012, according to the Energy Information Administration:

Crude oil: 76 cents
Taxes: 12 cents
Distribution and marketing: 6 cents
Refining costs and profits: 6 cents

Don't blame American's appetite for energy on the recent move, because Americans' gas consumption is at 11-year lows (perhaps the only positive outcome from the recession). Consumers have responded to the 2012 spike by continuing the trend of using less gasoline. According to MasterCard Inc.'s SpendingPulse Survey, Americans have purchased 5.3 percent less gasoline so far this year than in 2011.

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So what was behind the big jump in crude prices? Back in October, economists and investors worried that the European debt crisis would drag down the world economy. As a result, crude oil and global stocks fell to 52-week lows. From October to the beginning of February, European fears simmered down; economic data improved; and Indian and Chinese demand increased for raw materials. The result was a near-20 percent bump in stocks and an increase in crude oil from $75 to $90/barrel.

All of that would have been fine, but then tensions over Iran heated up and crude oil continued to rise. Investors speculated that escalating tensions in the Middle East would cause major disruptions in the world oil markets. Some of those concerns have been quelled, which accounts for some of the recent slide in oil prices, but it's clear that further negative developments out of Iran would likely push prices at the pump to over $4 per gallon. This weekend could see new developments, as talks between Iran and the United States and its allies take place. The goal is to resolve the dispute over Iran's nuclear plans and tamp down the rhetoric.

Understandably, most consumers don't really care why gas prices are up; they just want relief, which is why the news from AAA is welcome. That said, don't count on the "peak price at the pump" theory just yet.


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