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Rising Gas Prices Could Put Sting On Summer

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RACHEL MARTIN, HOST:

Across the country, gas prices are hitting heights only seen three times in history and never this early in the year. This past week, the national average price for a gallon of unleaded gas shot above $3.50. Some analysts say that Americans could pay up to $5 a gallon by the start of the summer driving season. For more, we're joined by Phil Flynn, an energy analyst and vice president at the futures brokerage PFGBEST in Chicago. Welcome to the show, Phil.

PHIL FLYNN: Thanks, Rachel. It's great to be here.

MARTIN: So, Phil, we know gas prices go up and down, sometimes dramatically. What is different about this particular spike?

FLYNN: Well, I think it's because it's happening at a time when demand is weak and at a time when normally gasoline prices go down. What's happening that's different this time is that we're seeing an unprecedented geopolitical risk in the price of oil. And more and more the price of oil has been driving up gasoline prices. Add to that the risks we're seeing in places not only in Iran but in Sudan or in Syria. All of these risk factors have been keeping the price of oil elevated. And that, of course, shows up at the gas tank almost immediately.

MARTIN: And what about on the supply side? What's happening in terms of refinery capacity here in the U.S.?

FLYNN: Well, refining capacity is going the way of the dinosaur. The price of oil continues to go up. There are new regulations on these refineries as far as clean air goes. And they can't make as much of a profit and they can't stay in business. And we're seeing refineries not only in this country but in Europe go bankrupt and just walk away from the refineries as opposed to put up with what has been not a very profitable business.

MARTIN: OK. So, what does mean, Phil? Is this just gloom and doom talk? I mean, we're always hearing about the specter of $5 a gallon gas, but could we see that this summer?

FLYNN: You know, my bet is probably not. If we do see a conflict with Iran, we'll probably see $5 a gallon for a short period of time, and the prices will come back down. And if things calm down in the Middle East, we could see a dramatic drop in gasoline prices.

MARTIN: So, high gas prices always kind of force people to reevaluate their own personal spending choices. What effect might that have on the fragile economic recovery right now?

FLYNN: It's going to put it in danger. We did see some data on Friday. Even though we've seen a spike up in the pump, other things that we buy haven't gone up quite as much. So, that's the good news. We have already seen the price of gasoline change the way that we live. I mean, we will never see gasoline demand perhaps as high as it was before the economic crisis began. That's a good thing in some ways because the high gasoline prices have changed our habits. We're not driving as much as we used to. We're using more ethanol in gasoline, and because of technology, we're going to be able to perhaps drive more miles in the future with less gallons of gas. So, there is an optimistic light at the end of this tunnel. Of course, right now, it feels like we were run over a train in a tunnel.

MARTIN: Phil Flynn is an energy analyst and he's the vice president of the futures brokerage PFGBEST. He spoke with us from Chicago. Phil, thanks so much.

FLYNN: Thank you so much. Transcript provided by NPR, Copyright NPR.

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