For anyone who has lived through gasoline shortages and price spikes, the recent headline in The Wall Street Journal may cause nightmares: "Americans Face Highest Pump Prices in Years."

Sad but true. Not since 2014 have fuel costs been as high as they are expected to be during the peak driving season of 2018. "The rise of the use of the word 'staycation' is probably going to happen this summer," one expert told the Journal.

Americans have gotten used to low pump prices. In 2011, another headline read, "$4 Gas Might Be Here to Stay." It wasn't. In fact, over the past four years, the price has stayed below $3 per gallon — and for a few months in 2016, the average national price for regular was below $2. Lately, the national price has been around $2.70, which is not welcome to motorists but is a long way from excruciating.

What's driving this upward pressure? Economic chaos under a leftist dictatorship has cut exports from Venezuela, which saw its total production plummet by 29 percent last year. The Organization of Petroleum Exporting Countries has implemented cuts in its overall output. Meanwhile, the U.S. and the European Union are enjoying solid growth and low unemployment, which boost demand for gasoline, which in turn tends to push prices up. All these factors have boosted the barrel price of crude oil from $46 to about $65 since last summer.

The most important thing about the world oil market, though, is it's highly responsive to changing conditions. When events conspire to raise prices, they set in motion responses that tend to lower them.

U.S. oil output is rising, thanks to the fracking revolution and the profitability of the business. In March, domestic production exceeded 10 million barrels per day for the first time since 1970 — and by the end of the year, it's expected to reach 11 million barrels a day, which would make the U.S. the world's biggest supplier. OPEC, despite its efforts to curtail production, expects that global supply will grow faster than demand this year.

The current jump in oil prices, of course, partly explains that expected lower demand. When Chicago families decide to put off those driving trips to Walt Disney World or Yellowstone, they deprive Florida and Wyoming gas stations of sales. Consumers may choose to order goods online rather than drive to the mall. Restaurants find they have to cut their prices to attract motorists.

Better fuel economy also has an effect. In model year 2016, the average for new vehicles in the U.S. attained a record high — and for 2017, the Environmental Protection Agency believes it will be even higher.

Right now, uncertainty is also weighing on oil futures. Will the U.S. and China avoid a trade war? Will events in Syria stoke hostilities in the Mideast? Either could stall the current global expansion. In that case, falling consumption eventually would drag down prices at the pump.

What this bump reminds us is how well the oil and gasoline markets have functioned in recent years. It's hard to remember that in 2008, the price of crude went above $140 a barrel — and a Goldman Sachs industry analyst predicted it would reach $200, which translates into $6-a-gallon gasoline. His forecast was wrong, because it failed to account for how lucrative returns would drive oil companies to devise new ways to extract the stuff — or the demand-suppressing Great Recession, which those high oil prices may have helped to cause.

Humans — both consumers and producers — are adaptable. So when the price you pay to fill your tank goes up, you can be confident that before long, it will go down, and vice versa. But huge changes are rare, and they rarely last. When it comes to petroleum, we're living in an era of price moderation. We should enjoy it.

 

Chicago Tribune