Gas Prices to Bounce Along with Value of the Dollar

The price we pay to fill up at the gas pump in 2011 will be determined by changes in the value of the dollar, says a University of Alabama engineering professor who follows the petroleum markets.

Gas supply should remain steady and prices may even drop with an improving dollar.

“There is no good reason for shortages, so the price should not increase much above current levels and could even drop if the value of the dollar against the euro improves,” says Dr. Peter Clark, associate professor of chemical engineering.

Currently, and for the next year, oil prices will be driven by the value of the dollar and to some extent speculation in commodities, he says. Gasoline prices track the price of oil, although they are also strongly influenced by gasoline supply. This means that refinery shutdowns for whatever reason can raise the price of gasoline even when the price of oil is steady.

For now, supply and demand are balanced, and there are production capabilities that can be brought online if demand increases. The economic recovery will be gradual, so demand pressure will increase slowly. This should keep the price of oil at reasonable levels for the new year.

The current spike in the price of oil is due to a decline in the value of the dollar.

There are two things that could drastically influence the price of oil and gasoline, Clark says.

In the near term, problems in the Middle East could drive the price of crude up dramatically and the price of gasoline would follow. And long term, growth of oil consumption in China and India will eventually put a strain on the supply of crude and drive the price up. This will happen over the next few years and will become the major driving force for crude oil and gasoline price increases in the years ahead.