Fortunately, average gas prices never spiked to the $5 a gallon mark that some had feared. Are we facing a similar situation this year?
One of the reasons gas prices in the previous three years failed to match the media's lofty predictions was because the economy was still in a malaise state. Demand was so weak in 2009, 2010 and 2011 that even very high oil prices due to speculation and Middle East turmoil could not muster a bigger jump in gas prices. If gas prices are to hit an all-time high in 2012, there would have to be a dramatic increase in demand.
While recent economic data have been positive, they are coming off a very low base. Take the Fed's growth forecast for 2012. The economy is expected to grow 2.2 percent to 2.7 percent. These numbers are decent compared to those of Europe, but they are not robust enough to result in significantly higher energy demand.
Moreover, the Fed is also forecasting the unemployment rate will stay above 8 percent through this year. This means Americans are unlikely to consume more gasoline.
The main driver behind speculations of record-high gas prices has been the increased tensions between Iran and the West. Iran, one of the world's biggest oil producers, recently announced it was halting some oil exports to Europe.
Although concerns over the nuclear standoff are valid, the predicted impact on gas prices is probably overstated. There is no perfect correlation between oil prices and gas prices. Even if oil prices were to hit record highs, it does not mean average gas prices in the U.S. will reach the historic milestone of $5 a gallon.
There is also a political angle. In this election year, the prospect of record gas prices is Washington's worst nightmare. Consequently, it is conceivable President Barack Obama would open the U.S. Strategic Petroleum Reserve to help ease gas prices. It is also conceivable Congress would pass legislation such as a gas tax holiday to lower prices.
