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$4-A-Gallon Gasoline May be Coming Back

$4-A-Gallon Gasoline May be Coming Back

By Jeff Youngs, February 27, 2012
Don't look now, but $4-a-gallon gasoline may become a fact of life again as spring yields to the high-demand summer driving season in the United States, and as various geopolitical events continue to influence the price of oil. And it's anybody's guess what that may do to the psyche of American automotive consumers.

The U.S. auto market has been exposed to $4-a-gallon gasoline two previous times, of course. The first was in the summer of 2008, when prices briefly spiked north of $4 a gallon, an economic upset that helped usher in the Great Recession. Then, gas prices surged past $4 a gallon again last spring before receding to around $3.50 a gallon for the last three quarters.

The spike four years ago greatly accelerated Americans' move toward fuel-efficient vehicles, pushing them toward smaller cars and crossovers alike. It also seemed to inure the public a bit to the return of $4-a-gallon fuel last spring. The recovery in the U.S. auto market has continued unabated since then, even though no one is truly comfortable with $3.50-a-gallon gasoline.

Despite remaining slack in the U.S. as the economy recovers slowly, foreign demand for American-refined gasoline, and geopolitical discomforts in the Middle East, seem likely to conspire to drive U.S. gasoline prices to a new record level by this summer, analysts say.

Early signs are that American consumers will continue their incremental adjustments as they shop for vehicles. Automakers' gas-powered fleets get increasingly more fuel efficient each year, keeping most consumers attached to more efficient internal-combustion engines, and still hesitant to pay extra for hybrids and EVs.

More car buyers may consider hybrids, EVs or diesel-powered small cars if gasoline prices rise as economists predict. And while there are no signs yet that consumers will go into some kind of psychoeconomic  swoon if they begin encountering $5-a-gallon gasoline for the first time, they could begin to hesitate if they have to make European-level outlays at the pump.

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