$4 Gas? Fat Chance

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Analysts say that while the supply squeeze is worrisome, it would take a major calamity—such as a repeat of the Katrina devastation—to send retail gasoline prices soaring to $4 a gallon. Oil companies and refiners are working to get production back to full capacity, and some analysts say some gasoline supply could be tied up in blend stocks—unfinished product—and put to market later. The most recent Energy Dept. forecast, released Apr. 10, predicted retail regular gasoline prices would average $2.81 per gallon in the summer of 2007 (April-September).

"We expect to see prices flatten around where they are now," says Douglas MacIntyre, senior oil analyst for the federal Energy Information Administration, part of the DOE. "More refinery outages and higher crude prices could push it to $3, but we're not looking at $4. More likely the summer average will be $2.50 to $2.80."

Questioning Consumers' Resilience

Some industry experts say consumers are actually getting a bargain at the pump, as prices are still lower than in the early 1980s, adjusted for inflation. On a national average, gasoline prices actually decreased for the week of Apr. 23, falling 0.7¢ to $2.87 per gallon. And in spite of the recent surge, prices are 4.5¢ per gallon lower than at the same time last year.

Still, this year's price rally has drivers feeling anxious. This month, consumer confidence dropped to its lowest level since August, in part because of the rise in gas prices. Yet the DOE reports that demand for gasoline remains strong. Motor-gasoline demand averaged more than 9.3 million barrels over the past month, up 2.3% from the same time a year ago, according to the DOE. Population increases, economic growth, and lengthy commutes have kept demand healthy, which is further adding to price pressure.

But analysts like Kloza and Stephen Schork, editor of The Schork Report, a daily newsletter on oil and gas, say that demand may not be as high as the DOE numbers show. They point to evidence that consumers in states such as California are curbing their gasoline usage, even as government numbers show demand increasing. On Apr. 13, the California government's State Board of Equalization reported that for the first time in 14 years, gasoline consumption declined in California for all but three months in 2006. "You have to look at the DOE numbers with a jaundiced eye," says Schork. "It doesn't make sense that there would be no hit in demand with prices continually going upward."

It's unclear what price would prompt Americans to curb their driving. What's far more certain is that $4 per gallon isn't likely anytime soon.

Herbst is a reporter for BusinessWeek.com in New York.