VIEWPOINTS : 1987: Looking Ahead to a Year of Big Changes : Higher Gas Prices
In 1987, you’re likely to see big changes in just about everything you buy. If you’re planning a vacation, you’ll notice differences whether you drive or travel by air. If you want to buy a home, you’ll be watching prices and mortgage rates closely. Eating out? You’ll see some unusual, new menus. The worlds of entertainment and retailing are in a state of upheaval. And, with a new tax law, investing may be more tricky than ever.
The Times polled experts in eight fields for their outlook on what 1987 will mean for businesses and consumers.
Gasoline prices are headed up. That’s if all the surplus production and refining capacity isn’t cranked up soon, which is extremely unlikely. But there’s no sure-fire way to determine when, or for how long, prices will rise. (One thing for sure, it’s only a myth that prices rise around holiday time!)
If gasoline prices moved in lock step with crude oil (which they don’t), then the recent price of $15 barrel for crude would pull today’s average 84.8 cents per gallon of gasoline to $1.01 at $18 per barrel. Barring a global emergency, crude oil prices shouldn’t rise much over that level soon. Gasoline follows the price of petroleum eventually, as all refined products do, but in the short term it marches to its own drummer. Gasoline consumption is edging up, but the increase will be under 3% for 1986.
We have not projected the price at the pump because the wild gyrations at wholesale during 1986 would give us a meaningless trend line. Logic tells us that gasoline prices should rise (as they are doing now) even if crude oil does not, because several important fixed costs haven’t dropped at all, and insurance bills have to be paid regardless of supply and demand for petroleum.
Competition on the street is fierce, but some gasoline retailers that have absorbed losses to gain sales will have to raise their price eventually--or go under. Our country has lost just about as many service stations as it can without threatening distribution in many of our communities, so it’s in our interest for dealers to survive.
On the other hand, cheaper prices have saved American motorists almost $26 billion during 1986, and some if not all of that amount will be recovered by the industry next year as prices return to higher levels.
Prices logically should rise to about $1.20 per gallon on the average during 1987, but could stay under $1 due to competitive pressures and new retail efficiencies. Look at it this way: If prices don’t move up enough, we’ll be seeing more shuttered service stations as we go urgently looking for that new fan belt.
