More pain at the pump: U.S. gasoline prices jump 18 cents in two weeks

By Money Matters Editors

It looks like the U.S. is headed for $3 gasoline, again

This is not a pleasant sight for U.S. motorists: gasoline prices have jumped 17.8 cents in two weeks to an average of $2.66 per gallon for regular unleaded, according to data compiled by the Lundberg Survey, Bloomberg News reported.

The increase is due entirely to higher oil prices, Analyst Trilby Lundberg told Bloomberg News, with profits margins for refiners and gasoline retailers shrinking in the process.

Refiners and gas stations are caught in a bind. Demand is sluggish, due to the fact that more than 7.2 million Americans have been removed from the workforce as a result of lay-offs, and that makes it hard to pass on cost increases. At the same time, high oil prices mean their feeder costs are up, squeezing margins. Oil, which is trading close to $80 per barrel, is up more than 100 percent since December 2008, and is up about 20 percent in the past six weeks.

Hence, it looks like $3 per gallon gasoline will return, assuming oil’s likely march to $100. Why is oil rising? This time it’s largely due to the weaker dollar, but institutional investors (IIs) also sense rising demand in emerging markets on a strengthening global recovery.

The bottom line for the U.S.? Higher gasoline prices are a major drag on GDP: it eliminates money that Americans would use for discretionary purchases; higher fuel costs also increase business transportation costs and ripple though the U.S. economy.

The above underscores why the U.S. should further increase fuel/energy efficiency across its economy: the Obama administration has implemented some efficiency measures, but much more needs to be done. And until then, as gasoline prices rise, look for U.S. GDP growth to sag.