Gas Pricier, but Brief Dip Seen Coming
By Laura Stevens, Arkansas Democrat-Gazette
March 21, 2008
Gasoline prices have been flirting in recent days with Arkansas’ average record of $3.18 a gallon set in May.
The national average record was set Sunday at $3.285, though it has dropped a penny since.
Soon refiners will shut down for maintenance and switch over to summer
gasoline blends, fueling the traditional spring price increase, experts
cautioned.
"And this hits consumers: If they don’t get their pockets picked by
oil profits, they’ll get their pockets picked by refining profits,"
said Judy Dugan, research director for Consumer Watchdog, an advocacy
group.
AAA reported Thursday that an average gallon of regular in Arkansas
cost $3.172, up from $3.167 a week ago, and 20 cents higher than a
month ago. Arkansans were paying $2.427 a gallon a year ago.
The Pine Bluff and Texarkana metro areas broke their records last weekend, setting new highs of $3.213 and $3.168, respectively.
Crude oil for May delivery fell 70 cents to settle at $101.84 a barrel on the New York Mercantile Exchange on Thursday.
Oil has fallen about 9 percent since setting a record of $111.80 on Monday.
Thus, "you can expect lower prices at the pump in the next day or
two," said James Williams, an energy economist who owns WTRG Economics
near Russellville. For every $1 crude falls or rises, gasoline should
follow with a corresponding 2.5 cents, he said.
Meantime, prices were as high as $3.29 in Eureka Springs and west
Little Rock on Thursday morning, according to Arkansasgasprices.com and
LittleRockgasprices.com, Web sites where consumers can report gas
station prices. Stations in Jacksonville, Conway and Jonesboro were
still as low as $3.05.
DELIVERY RATE INCREASE
High prices will force Little Rock-based Chase Courier Inc. to
initiate its first rate increase in years, said President John Coleman.
He hires independent contractors, who are responsible for their own
vehicles and fuel, to make about 150 deliveries a day. So far, he’s
only added a fuel surcharge to deliveries outside the Little Rock area,
but now he’ll be increasing city delivery costs from $10 up to $13.
"I’ve held off for quite a while," Coleman said. But "we only have a
small profit margin, and fuel is the No. 1 impact." So far this year,
supply-anddemand issues have played little role in the price of
gasoline, experts said.
According to the U.S. Energy Information Agency, gasoline demand for
the week ending March 14 was down 1.8 percent from a year earlier, and
gasoline supplies were near a 15-year high.
"We’re swimming in the stuff," Williams said.
Investors have been hedging against the falling dollar by buying
commodities, such as oil and gold. But the Federal Reserve Board
intervened this week by facilitating the sale of faltering investment
bank Bear Stearns and cutting a key interest rate. That bolstered
investors’ faith in the economy, said Phil Flynn, energy analyst for
Chicago-based Alaron Trading Corp.
As a result, the price of oil started falling this week.
"The commodity bubble has burst, and that’s good news for consumers
who have really been paying through the nose," Flynn said. "We’re going
to see a little relief at the pump, thank goodness, because the price
of oil has come down quite a bit." Investors are finally seeing the
light at the end of the tunnel for the current financial crisis, Flynn
said. Wednesday saw the biggest selloff of crude oil since the Persian
Gulf War in 1991 when investors quickly realized that it was going to
be a short war without much impact on production, he said.
SHORT-TERM RELIEF
Tom Kloza, director of the Wall, N.J.-based Oil Price Information
Service, wrote in an email that although the coming days should see
falling prices, this is most likely a short-term correction.
"We’ll get a bit of a respite, but gasoline should move higher, independent of the price of crude, in April," Kloza wrote.
That’s
because the spring season usually sees a price bump as refineries
switch over to summer blends and demand for gasoline increases as
driving season begins, Kloza said. Gasoline supplies should drop in the
next 30 days as refineries slow production and shut down for
maintenance.
"I think April is a good bet for higher prices, but the remainder of March has mixed prospects," Kloza wrote.
Right now, crude oil is making up about 73 percent of the price of a
gallon of gasoline, Williams said, leaving marketers and refiners
without much profit. "Refiners are making virtually nothing, retailers
hardly ever make anything, and state, federal and local taxes run about
15 percent," he said. "The big increase, in fact all of the increase
from a year ago, is due to higher crude prices." In May, when Arkansas
set its record price of $3.18 a gallon, it was largely because of high
refining margins with crude oil at about $60 and barrels of gasoline
going for about $35 higher. With spring price increases coming, crude
oil will have to continue to soften to keep gasoline costs relatively
low, Williams said.
"If crude prices go back up, gasoline prices will hold at this high
level," Williams said, and may continue to go up by at least 20 cents.
Dugan, with Consumer Watchdog, said history shows that refiners use
every spring to raise profits. This year, despite a weak economy,
should be no different, she said.
"Because they’re able to charge more when the supply is lower, we’re
now seeing refinery output at a very low level for this time of year,
and it’s only going to get lower," Dugan said.
According to the Energy Information Administration, U.S. gasoline
refining output in the week finishing March 14 was down about 1.5
percent compared with the corresponding period a year earlier.
There’s not enough competition in the refining business, Dugan said,
and refiners are able to make huge profits every spring because of
that.
"Consumers really need relief," she said. "But I think that
refiners’ need to boost their profits will trump anything consumers
need."