Will the Gulf Oil Spill Lead to Higher Gas Prices?

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The catastrophic BP oil spill in the Gulf of Mexico may soon prove to be one of the worst environmental disasters in U.S. history, but from a practical, cold-blooded perspective, it’s worth asking if it will affect gas prices in the near or long term.

The average price for a gallon of gas has crept up 5 cents in the past week since news of the leak’s severity hit. We’ve already said that this summer could be pricey at the pump, so it would be hard to determine how much the disaster would contribute to a price spike that would have likely happened anyway in the lead-up to Memorial Day weekend.

The blunt math of the situation tells us that the Gulf leak, while devastating for local wildlife and tourism, is not enough to affect the flow of crude. Only two actual platforms are down, which in the grand scheme of U.S. oil consumption is almost nothing. However, the spill could slow down production, shipping and refining of oil in Mississippi, Alabama and Louisiana, which account for 19% of the U.S. refining capacity.

Analyst Ben Brockwell of Oil Price Information Service sees a psychological factor that could contribute to “upward momentum” for prices. This momentum was happening anyway, he told Daily Finance, but the oil spill could exacerbate it.

Much depends on the mending economy and how improved conditions could affect demand. If unemployment remains high, it could have a dampening effect on gas prices.

Gas Prices Creep Up After the Spill, Despite Weak Demand (Daily Finance)