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Could gas hit $4 this summer?

By Claes Bell ·
Wednesday, February 2, 2011
Posted: 10 am ET

After averaging a relatively modest $2.78 in 2010, the federal government's Energy Information Administration predicts the price of gas will rise substantially this year and next, hitting an average of $3.29 in 2012, with price spikes temporarily raising the price well beyond that number.

The prediction comes in the EIA's most recent "Short-Term Energy Outlook," which predicts most of the projected growth in gas prices will come as a result of an accelerating global economic recovery.

The ethanol content of gas could be going up, costing you even more at the pump

A new government report says we should expect gas prices to rise in the near future.

While $3.29 would represent a pretty significant increase over last year, the EIA raises the possibility of serious price spikes during the high-demand months of summer:

There is also significant uncertainty surrounding the forecast, with the current market prices of futures and options contracts for gasoline suggesting more than a 25 percent probability that the national average retail price for regular gasoline could exceed $3.50 per gallon in the June through September period in 2011 and an 8 to 10 percent probability that it could exceed $4.00 per gallon in August and September 2011.

This is pretty grim news, especially for those with long commutes to work. But the bright side is there's still time to prepare for those price shocks now, especially if you're in the market for a new vehicle.

While it's likely that in the event of $4/gallon gas, the resale values of cars with less-than-ideal mileage will tank, they're probably pretty high right now. Sales of new autos, especially trucks, have been brisk lately and used-car prices generally have been pretty high. Especially for those who currently drive a gas guzzler and are due for a new car, this may be a good time to consider trading your vehicle in for a more fuel-efficient model now before gas prices skyrocket.

If you're in the market for a new or used car and considering a car with less-than-stellar mileage, I would urge caution. A car is a durable good with a high price tag; even if you can stomach paying $3.50 or $4 for a gallon of gas, by the time your new auto loan is paid off in 3 or 4 or 5 years, prices may be even higher. Unless you've got a large family that needs a big vehicle, buying a smaller, higher-mileage vehicle is the smart money play right now.

If you work in a trade that requires a big vehicle and you're shopping for a replacement now, it may make sense to choose a higher-mileage V6 option if you can get by with that. If you need more power, you may want to hold onto your old vehicle a little longer. It seems likely that as gas prices rise, automakers will respond by introducing more high-efficiency options in their work-truck lines.

How will you respond to higher gas prices? Do you think preparing ahead of time is a good idea?

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Dean DeVirgilio
February 08, 2011 at 3:53 am

I do not want to see $4 a gallon you crooks