Gas Prices Reach Record High in R. I.
And prices are expected to climb even higher in the weeks ahead as the cost of crude oil continues to surge.
April 23, 2008
What most of us had painfully suspected is now official: gasoline is more expensive than it has ever been.
The average price of gasoline in Rhode Island yesterday was $3.489 a
gallon, up 22 cents from last week, according to a survey of local
dealers by the state’s Office of Energy Resources.
Nationally, the average price was $3.503 a gallon, according to the AAA Daily Fuel Gauge Report.
That surpasses the inflation-adjusted price of $3.413 a gallon, the
average price of regular grade fuel in March 1981, according to the
Energy Information Administration, the statistical branch of the U.S.
Department of Energy. (The actual average price was $1.417 a gallon,
and the EIA converted this to April 2008 dollars.)
Analysts say the big runup in prices over the past week is due mainly
to two factors: the high price of crude oil, which is up $21 a barrel,
or about 22 percent so far this year; and the annual switch to
summertime fuels by refineries, which tends to push up the price of
gasoline every spring.
There doesn’t seem to be any relief in sight. Yesterday, crude oil for
May delivery rose 79 cents, or 0.7 percent, to settle at $117.48 a
barrel on the New York Mercantile Exchange. That is up 85 percent from
one year ago, and a new record close.
Neil Gamson, an economist with the EIA, said that the prices at the
pump don’t yet reflect the recent increases in crude oil prices.
“Even if [crude] oil drops, you haven’t seen the gasoline pass through
from those prices yet,” he said. “There’s room for it to go up.”
There’s generally a lag of several weeks between changes in crude oil
prices and the retail price of gasoline at the pump, he said.
A look at the numbers shows why: a year ago, the price of crude oil was
about $63 a barrel. Since then, it has increased by $54 a barrel, or
about $1.29 a gallon. But gasoline, which is made from crude, has gone
up just 67 cents in Rhode Island, compared with a year ago.
The EIA had predicted that gasoline would peak at $3.62 a gallon this
summer. But that prediction, released April 8, was based on crude oil
at $104 or $105 a barrel, Gamson said.
At the current average price, Americans will spend about $1.35 billion
on gasoline per day, compared with $1.1 billion a year ago, and $514
million in 2002, according to Tom Kloza, an oil industry analyst and
publisher of Oil Price Information Service.
Even before the most recent crude oil surge, the EIA predicted that gasoline could hit $4 in some parts of the United States.
But Kloza, the oil analyst, said in his blog, Speaking of Oil, that $4
gasoline is “unreasonable” given a sluggish world economy and how that
will affect supply and demand. He predicts the national average to be
$3.50 a gallon within the next week, he wrote.
The 22-cent spike in gasoline prices over the past week is largely due
to refiners making the annual switch to summer blend fuels, according
to Jeff Lenard, vice president of communications for the National
Association of Convenience Stores, or NACS. The Alexandria, Va.-based
trade group represents the convenience store industry, which sells
about 79 percent of all gasoline in the United States.
Each spring, gasoline refineries clear out their remaining stocks of
winter gasoline to make summer gasoline. The shift is mandated by state
and federal laws that require gasoline stations to sell fuel that is
formulated differently, depending on the season. Winter gasoline
evaporates more quickly, which makes it easier to start cars in cold
weather. But in the summer, gasoline is made to evaporate more slowly
because the fumes contribute to the formation of smog.
Making gasoline evaporate more slowly requires refiners to remove
certain components from their gasoline blends, which reduces the number
of gallons that can be refined from a barrel of oil. It also drives up
production costs, Lenard said.
The switchover process usually begins in February when refiners begin
to draw down their stocks of winter-blend gasoline. That blend usually
cannot be delivered to wholesale outlets after May 1, according to the
convenience store association.
At the same time, some refineries perform their annual maintenance at
this time of year, which can lead to a drop in gasoline inventories.
The high price of gasoline has prompted calls for the government to
take action. For example, the nonprofit group Consumer Watchdog said
that President Bush should release some of the oil in the 700
million-barrel Strategic Petroleum Reserve, a stockpile of oil stored
underground in Texas and Louisiana.
The New England Fuel Institute, which represents about 8,000
independent motor and heating fuel companies, has been urging Congress
to pass legislation that would strengthen regulatory oversight of
commodity futures trading in certain energy markets. Supporters, who
call the bill “Close the Enron Loophole Act,” say it will help guard
against market manipulation by speculators.
Sen. John McCain, R-Arizona, the presumptive Republican presidential
nominee, has suggested that Congress institute a gas-tax holiday by
suspending the 18.4-cent federal gas tax and the 24.4-cent diesel tax
from Memorial Day until Labor Day.
The high prices appear to be dampening demand for gasoline. For the
first 15 weeks of this year, the average demand for finished gasoline
was 9.12 million barrels per day, according to the EIA. That’s down
about three-quarters of 1 percent compared with the same period last
year.
For years, gasoline consumption has been on a steady rise, going up an
average of 1.4 percent each year since 2000. It increased 2.4 percent
in 2006 and 1.6 percent in 2007.
Who are the big winners in the current price runup? Kloza said that
besides the companies that own the oil, credit card companies are
benefiting from the high price of gasoline. Those companies typically
collect 2.5 percent of every sale, which means they receive about 9
cents on each gallon of gasoline. That is “far in excess of what the
retailer makes,” Kloza wrote.
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