Energy Economy

Gas Prices Rise Above $4 in Several States

The AAA forecasts that gasoline prices over the July 4th holiday will be the highest since 2008. Hurricane Arthur, creeping up the East Coast, may drive them even higher in states along its path. But the price of the average gallon of regular has risen above $4 in several states. The holiday weekend and the weather are not enough to explain the increase.

Gas prices have reached above $4 in California, Washington, Hawaii and Alaska. Levels are above $3.95 in Oregon, New York and Connecticut. Based on current trends in oil prices, a gas price above $4 in these states may not be far away.

Gas prices are supposed to rise in lock-step with crude oil. If this is the case, they may flatten. Oil rose to $107 based on trouble in the Middle East. At this point they have settled back to $104.

However, the problems in the Middle East are hardly over, which means the march of gas prices could be higher soon. An interruption of oil supply could happen in a matter of days. Even the threat of more widespread violence could push crude up as the markets anticipate more trouble, whether that trouble is likely to come as not.

So far, the increase in states with gas prices at or near $4 continues has been offset by the number of states with low prices because of proximity to refineries. Texas, Alabama, Mississippi and Oklahoma all have gas prices below $3.50. Low prices in these and several other states may keep the national average below the $4 level. Nevertheless, it appears that the average price of a gallon of regular nationwide will stay at or above the current level of $3.67.

High gas prices are, without a doubt, a drag on the economy. They particularly affect lower- and middle-income households, and those with members who must regularly drive long distances. In most of these households, high gas prices sap discretionary income, as budgets that already include housing, clothing and taxes are overwhelming. Consumer spending fall offs among these households and it becomes a factor in overall gross domestic product (GDP).

Gasoline prices are more than $4 in several states, and an already weak GDP recovery is therefore threatened.

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