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2012 Gas Prices Likely to Break Annual Record

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At the beginning of 2012, gas prices averaged $3.30 and peaked in April at $4.00. Taking a dip to $3.36 in July, gas prices are currently 50¢ above what they were in January. If this trend of higher prices continues, which it is expected to, the average price of gas for 2012 will set a new annual record. The average yearly price of gas in 2011 was $3.47.

The seasonal high gas prices that hit the U.S. over Labor Day affect more than consumers’ wallets. They also affect new vehicle purchases, particularly from the Detroit Three. Ford, General Motors, and Chrysler depend heavily on sales of their light truck models, which are substantially less fuel efficient than passenger cars. And foreign name brands still dominate the market on fuel-efficient passenger cars.

However, all three Detroit manufacturers saw double digit sales increases compared to August 2011, which is remarkable when compared to other U.S. businesses who are struggling in the sluggish economy. And four of GM’s smaller cars—the Cruze, the Sonic subcompact, the Spark mini, and the Volt—all had record sales months in August.

While the boost in sales is mostly due to easier credit requirements and better marketing, it remains to be seen whether or not these domestic sales will continue to rise in the face of record-breaking gas prices. And since Americans are keeping their cars longer (10.8 years) than ever, it will be interesting to see whether these higher gas prices will encourage Americans to buy smaller, more fuel efficient vehicles, whether foreign or domestic, or if they will keep holding onto their cars and hoping for gas prices to fall.

To better understand how speculation in crude oil prices can cause gas prices to rise and fall dramatically, check out Jim Taddei’s article, Understanding Speculation in the Oil Market.

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