Gas price likely won't set record this summer

(NEW YORK) — At least gasoline should cost you less in 2013. Hamburger, health care and taxes are all set to take a bigger bite out of the family budget this year. But drivers’ annual gas bills are expected to drop for the first time in four years. Forecasters say ample oil supplies and weak U.S. demand will keep a lid on prices. The lows will be lower and the highs won’t be so high compared with a year ago. The average price of a gallon of gasoline will fall 5 percent to $3.44, according to the Energy Department.

Here's why I believe that the current high price of oil is not enough to derail the U.S. economic recovery.

Too many otherwise-serious discussions about oil prices and production costs are marred by the failure to take inflation into account. Statements like “the era of $20 oil is over” or “oil prices will hit $140 per barrel by 2025” are typical examples of the prevalence of money illusion in the oil market. Forecasts about nominal prices far in the future, and statements about prices which make comparisons with prices in the 1990s, are meaningless.

The state's average gasoline price, though down 5.5 cents from a week earlier, is still higher than during Memorial Day weekend 2008. Analysts say this summer's outlook is difficult to predict.California drivers will pay record gasoline prices over the Memorial Day weekend but could get relief in the weeks ahead — unless more unplanned refinery outages occur.

  It’s an ill wind that blows nobody any good.

Crude oil’s supremacy in motor fuels is pricing it out of power and industry, leaving it stuck in low-growth transport and vulnerable to a revolution that could favour natural gas. International oil company BP predicts worldwide oil demand growth of just 0.8 percent a year up to 2030 – slower than for any other energy type and only half the projected total energy demand growth rate over the same period.

Goldman Sachs says that as world economic growth resumes, we’ll see $85 a barrel oil this year and possibly $100 a barrel oil in 2010. That, as I’ve worried before, would stand a good chance of just see-sawing us back into recession. Then the price of oil would plummet again, and once again investment in new oil production and oil alternatives alike would collapse. Could there be a better way?

Despite being weeks away from the start of the driving season proper, gas prices - at the pump - have been surging recently. With premium now over $4 nationwide (over $5 in SoCal - up 25 days in a row), this is the most expensive gas has ever been for the second week in February despite gasoline being relatively well supplied.