In last week’s blog I discussed the factors (in a word, Iran) that are contributing the run-up in gasoline prices and offered up that NADA believed prices would reach $4 per gallon sometime in May.
Data collected over the past week has made us more resolute in our prediction.
Although President Obama stated this week that all options including military ones are on the table to address the Iranian nuclear issue, he’s repeatedly stressed the point to political foes and Israel alike that diplomacy and sanctions are the preferred mechanisms for resolving the conflict.
In addition, Iranian officials have re-opened the door to negotiations by expressing their willingness to allow IAEA inspectors into disputed nuclear facilities, albeit under the right conditions.
As a result, crude oil spot prices and gasoline futures have more or less flat-lined over the past week.
Given these points, we’re sticking with our forecast that the national average price of regular grade gasoline will hit $4 per gallon in the month of May.
Last week I also shared that at $4 the impact to used vehicle prices would be mild relative to previous gasoline spikes.
Why is this?
Considering that gasoline prices averaged more than $3.50 last year, $4 per gallon gasoline no longer triggers the reaction in consumer demand that it once did.
For example, if prices were to suddenly escalate from current levels to $4, we estimate that prices for used compact cars like the Ford Focus or Honda Civic would increase by an average of $179, while prices for large SUVs such as the Chevy Tahoe would decline by $387.
The table below details what the used price impact would be for segments across the fuel efficiency spectrum, and provides estimates for the less desirable scenarios of $4.50 and $5 per gallon gasoline.
Thankfully current signs point us staying below July 2008’s record high of $4.11 – at least this year.