Mendoza School of Business

The Bottom Line: Notre Dame experts say gas prices here for a while

Published: April 1, 2012 / Author: Ed Semmler

At least for the foreseeable future, don’t
expect any big price breaks at the gas pump.

Largely caused by an improving worldwide
economy, demand for oil is increasing — especially in China and India — and it’s creating upward
price pressure, according to two experts from the University of Notre Dame.

In this case, high gasoline prices are
being caused by high oil prices, though that’s not always the case since prices
can spike with even the hint of a threat to oil or gasoline production.

The nation’s energy infrastructure is
perfectly stretched to maximize efficiency when things are perfect, says Thomas
Gresik, a professor of economics and econometrics at Notre Dame.

“But just a storm or a threat to some
refineries can cause big price swings. Take any refinery capacity out of the
system and prices will go up.”

Beyond the increase in oil prices caused
by rising demand and tension in the Middle East, there also is a normal price
cycle at work, Gresik says. Barring other factors, gasoline prices tend to move
upward through the first half of the year before falling off in the second half
of the year.

But what happens this year is anyone’s
guess. Have we topped out yet? Will gas prices start dropping in the second half
of the year?

Barring any political unrest, hurricanes
and other factors, Gresik believes gas prices might go up a little bit higher
before moderating and perhaps sliding downward a little bit beginning this

But Jeffrey H. Bergstrand, a finance
professor in the Mendoza College of Business, isn’t quite so optimistic.

“Demand is high and the supply is where it
is,” he says. “I think we could stay in the $4 to $4.25 range for the next year.
We probably won’t see $5, but $4.50 is foreseeable.”

For the entire article, visit The South Bend Tribune website.


Topics: Mendoza