Gasoline prices in the United States may shatter old records this summer given record futures prices on the New York Mercantile Exchange (NYMEX). The U.S. Energy Information Administration (EIA) incorporates these futures prices in their prediction of changes in retail gasoline prices.

High gasoline prices have not reduced demand in the United States, as consumers have cut back in other areas to cover their gasoline expenses. The real impact has been the decline in consumer spending. However, consumers can only cut back so far before they begin to examine alternatives to using the family car, and that will have an effect on the automotive aftermarket.

The spike in diesel prices was steeper than gasoline and even worse for the overall economy. The diesel price increase has far reaching consequences because transportation costs are a part of everything we buy.

High diesel prices make it even more difficult for a trucking company to make a profit, and it was not an easy task before the price spike. Fuel prices - up more than 60% for some companies - are a major problem, immediately affecting a trucking company’s cash flow. There could well be another industry shakeout: companies able manage costs survive, and the rest fall by the wayside.

Managing costs means more attention to routes and a closer watch on local diesel prices. States unfriendly to trucking may have fuel prices 12% to 13% higher than the national average - although they still want their milk and bread delivered. Companies that can afford to may avoid those states, or equip their vehicles with extended range tanks to allow them to operate in the state without refueling.

According to the EIA fuel price forecasts for crude oil, gasoline and diesel, prices are not expected to return to 2003 levels anytime soon.

With crude oil again more than $50 per barrel, and the average retail price of a gallon of regular gasoline above $2.06 nationally at the end of the first quarter, it looks as if high gas prices are here to stay. MEMA expects that prices will fall back towards the historical trend line by July, and that the U.S. monthly average retail price for regular gasoline will stay above $2 per gallon through 2006.

Diesel prices are harder to forecast because of formulation changes mandated by EPA. However, the price is now above the level expected, given the prices of gasoline and crude oil, so some rationalization is forecast.

As long as global demand for crude oil continues to grow at an average rate of 1.5 million barrels per day, there is little reason to expect a drop in petroleum product prices unless production capacity grows significantly - which is a very unlikely event.

The role of refinery capacity in explaining gasoline prices in 2004 may have been overestimated by some, but there is still a small amount excess capacity. Although refining constraints were not critical in 2004, refinery capacity will become more important as long as growth in the demand is outpacing the growth in capacity.