Why Gas Will Never Hit $10 Per Gallon in the U.S.

News item: Gas Prices in the United States May Someday Hit $10 Per Gallon.

Spot sez: You'll never see it happen, and here's why. The day when this blog entry was published, May 4, 2008, gas prices in the U.S. were hovering at around $3.50 per gallon. Everyone who drives a car is feeling the impact, but some more than others. Over-the-road truckers are paying several hundred dollars more per fill-up thanks to the skyrocketing price of diesel fuel.

Meanwhile, every Tom, Dick and Fido are complaining about the price of gasoline, but let's look at the true impact. The top-selling car in the U.S. is the Toyota Camry, which has a fuel tank capacity of 17.2 gallons. At $2.50 per gallon, it cost $43 to fill the tank. At $3.50 per tank, it costs $60.20, or about $17.20 more. Fill your tank three times a month, and you're paying $51.60 per month more than you were about a year ago. Yeah, that hurts, but most of us are going to grin and bear it. Most people will cut costs somewhere else to make ends meet. It's not going to radically change the way we live. And, for the upper middle class and very wealthy, an additional $51.60 per month is really not that big of a deal.

Now, let's look at those scenarios at $10 per gallon: It would cost $172 to fill the tank of a Camry, compared to $43 at $2.50 per gallon -- a difference of $129 per fill-up, and $387 per month based on three fill-ups. All of a sudden, you're talking about a monthly jump in prices that the average middle class, credit-card-debt-ridden family is just not going to be able to bear. And, $10 per gallon gas prices will even get the attention of the super-rich, many of whom are driving gas-guzzling SUVs and luxury cars. The impact on these folks might be as much as twice the average, or about $774 per month.

When we've reached that point, all socioeconomic classes of our society will be demanding alternate forms of transportation -- mass transit, electric cars, hydrogen-powered cars, etc. The demand for change that has been needed for really the past 30 years will become so pervasive that there will be no turning back. And if there is anything that can lead to the downfall of the major U.S. oil companies, it is that. For the past several years, all of the major oil companies are reporting huge profits. As the price of crude oil continues to increase due to new demand overseas, these profits will continue to grow.

There will come a price point, and it will be before $10 per gallon, at which the oil companies will know they cannot continue to pass along all of their rising costs to their customers. With billions of dollars of profit per quarter, there is room for the oil companies to eat some of the increase from the oil producers and settle for, let's say, hundreds of millions of dollars in profit rather than billions. The oil companies are all aware that the only event that can lead to their downfall, at least in the short term, is to allow prices to escalate to the point where both John Q. Public and Bill Gates are having trouble coping. They're not going to make that mistake.