S.C. drivers may see $3 gasoline by start of summer

South Carolina drivers have in the past enjoyed some of the cheapest gas in the nation, but that could soon change as prices edge closer to $3 a gallon.

The state is one of the 10 most vulnerable to a gas price spike While all drivers would be affected by gas hikes to the $3 range, drivers in South Carolina as well as Mississippi, Montana, Louisiana, Oklahoma, Kentucky, Texas, Maine, Georgia and Idaho would be hit harder, according to a report by the Natural Resources Defense Council.

The organization ranked the states based on the percent of income spent on gasoline by the average driver.

Greenville-area stations reported average gas prices of $2.656 Friday while the national average was $2.862. Gas prices are being driven by the recent increase in crude oil prices, which touched the $87 range but has now dropped to the $86 range.

Crude has traded between $68 and $84 a barrel during the past six months. In the past two months, crude prices have been climbing as world equity markets rose and U.S. refining climbed from a 16-month low.

Upstate gas prices are 5.5 cents higher than a month ago and about 76 cents above a year ago.

The U.S. driving season begins around Memorial Day, sending gas prices somewhat higher. Gas prices often begin rising in March as refineries switch over to their summer blends, said Brendon Byrnes, spokesman for AAA Carolinas.

Although U.S. consumption has increased slightly, demand still is lower than before the recession hit despite some signs that the economy is improving.

“The main reason we’re seeing this uptick is the price of oil because the speculators have a great deal of optimism about recovery,” he said.

David Bodde, a Clemson University economist with expertise in energy, agreed.

“It looks like a financial phenomenon,” he said, adding that seasonal factors could also play into the rising costs. “I would bet that big investors are placing bets on the economy improving. You can’t find it in the supply and demand side.”

In some ways, it doesn’t matter that much what happens with U.S. consumption because the new demand will be in China and India. North America is considered a replacement market – people buy new cars to replace older ones. Many times, the replacements are more fuel efficient than ones previously owned.
n China and India, however, many consumers may be buying their initial vehicles.

Some economists fear that the $3 range is such that consumers might try to reduce their gasoline consumption and slow other spending, perhaps stifling the fragile economic recovery now underway.

“I think it is one of the biggest risks we could face this year,” said Mark Vitner, senior economist with Wells Fargo Economics Group. “While $3 is significant, when it gets to $3.50 a gallon, the price pulls people away from other spending.”

Stephen Schork, an oil trader and analyst, agreed about the $3 level.

“It's a price where you start to see demand destruction begin to kick in,” he said.

“That’s always a factor,” Bodde said. “The situation probably is a little bit out of the hands of the Saudis,” who tend to think a fair price of oil is in the $70s.

“We’re trading outside that range now,” he said, adding the Saudis and OPEC tend to want to get the most for oil they can without tipping Western economies into a conservation phase.

“Once you make a structural change in the U.S. fleet, you’re not making a behavioral change,” he said. The Saudis don’t want that because it would lessen demand for crude oil and could affect the price.

The last time prices spiked was July 2008 when they hit more than $4 a gallon, slamming the brakes on consumption and helping push the country deeper into recession. Crude oil prices hit $147 that month but fell to $33 by December. Crude was selling at nearly $86 a barrel Tuesday.

Vitner said that while $3.50 gas could change behavior, he doesn’t think the impact will be as severe as it was in 2008, especially in South Carolina.

With an unemployment rate of 12.5 percent for most of the year and the average length of unemployment more than three months in duration, one of four South Carolina workers has been out of work during that period.

Regardless of price, unemployed workers tend not to drive much, he said. So a drop in consumption wouldn’t be as drastic as it was in 2008 when motorists parked their cars as much as possible.

Bodde said he doesn’t think gasoline in the $3 to $3.50 range would tip the economy into another recession alone.

But “it darn sure doesn’t help things. It could be a contributing factor” if other factors remain weak, he said.

Vitner said that about half of South Carolina’s population lives in rural areas. They have longer distances to drive to work and so would be hurt more by higher gas prices. Also, most of the beach vacation travelers to the state arrive by vehicle – another sector of the state’s economy that could be hurt by higher gas prices.

“Our ongoing oil addiction is draining our wallets and our economy, and rising gas prices will only add to this burden,” said Deron Lovaas, transportation expert at the Natural Resources Defense Council. “That's why we need to move forward with clean energy and climate solutions that will not only strengthen our national security and our environment, but will also help revitalize our economy.”

Byrnes said that “South Carolina is probably not as likely to hit the $3 level as North Carolina,” which has prices about 15 cents higher per gallon.

However, over the past two years, gas prices rose about 70 cents between March and the middle of June. If that holds true, the state’s gas prices would zoom past the $3 mark. South Carolina’s average gas price was at $2.57 in early March.

“We expect the rise to be slightly muted this year because of the high unemployment and the high supply,” he said.