Gasoline Price In State Leaps 20¢ In Week
Mideast Conflict, Natural Gas Dispute Raise Cost Of Oil, But It’s Retreating Again
January 9, 2009
Global conflict and rising crude oil prices drove gasoline up in Arkansas by 20 cents a gallon in one week from a five year low.
AAA reported Thursday that regular averaged $1.671, up exactly 20 cents
since Jan. 1. Gasoline prices were last below $1.50 in January 2004.
The main factors in pushing up the price of crude oil have been the
military conflict between Israel and the Palestinians and the dispute
over natural gas between Russia and Ukraine. "Anxiety in the energy
markets… affects energy prices," said Mike Right, spokesman for AAA.
Markets are still reacting to a possible supply disruption from the war
in the Middle East, said Phil Flynn, vice president and energy analyst
for Chicagobased Alaron Trading Corp.
"If there’s a cease-fire, I do think we’ll see prices get back down
into the $30s," Flynn said regarding the price of a barrel of oil.
Futures contracts on the New York Mercantile Exchange for February
delivery of crude oil rose from $35.35 a barrel on Dec. 24 to $48.81 on
Monday but have since fallen to $41.70.
Gasoline generally follows crude oil, and so pump prices have not had the time to reflect the recent drop in crude.
Typically, a $1 increase in a barrel of crude oil translates to a
2.5-cent increase per gallon of gasoline, according to James Williams,
energy economist and owner of WTRG Economics near Russellville.
Right said that during that same period, wholesale gasoline prices rose from 85 cents per gallon to $1.15.
While prices aren’t likely to go back up to the state record of
$3.97 on July 17, "consumers need to get used to these seemingly wild
swings in gas prices," Right added.
While the Israel and Palestine conflict doesn’t technically involve
oil, anything that destabilizes the Middle East, which produces most of
the world’s oil, will push crude oil prices up, Williams said.
Williams said the Organization of Petroleum Exporting Countries will
continue to try to force prices up through production cuts, and
consumer demand will continue to decrease while the economy weakens.
Crude oil itself takes a while to make it from refinery to pump, but
futures contract prices can have an immediate effect, Williams said.
A futures contract locks in a price for a commodity to hedge against
market fluctuations. There’s a limited supply of gasoline in the
country, and many wholesalers tie their current prices to the futures
prices. Also, any disruption in the supply chain will cause a quick
price response, Williams said.
"Oil companies behave just like everyone else," Williams said. "Because
the futures market influences the cash market, that happens faster than
what actually happens following the refined barrel of crude all the way
through the system." However, Judy Dugan, researcher for Consumer
Watchdog, said in an e-mail that the fluctuating crude oil and gasoline
prices should be of concern to citizens.
"Consumers saw last summer how high prices can go, so a 20-cent
increase in a couple of weeks would scare anyone, especially since
there’s no good reason for the increase," Dugan wrote. "Other kinds of
products certainly aren’t going up." She said it’s relatively easy for
refineries and oil companies to manipulate prices and people should
insist on more regulation from Congress.
Pine Bluff, Little Rock and Texarkana had the lowest average prices for
gasoline in the state, according to AAA, with regular at $1.648, $1.656
and $1.663, respectively. Northwest Arkansas had the highest averages,
with Fayetteville at $1.691 and Fort Smith at $1.696.
Gasbuddy.com, a site where people can report gas station prices, showed
the highest reported price of $1.89 at stations in Prescott and Ozark.
Since Wednesday, crude prices have gone back down, thanks in large part
to a U.S. Energy Information Administration report that the country has
a record amount of crude oil in the supply chain, Flynn said.
"We’re just swimming in crude oil," Flynn said. "So the oil is there,
and because the economy is slow, we don’t need as much oil." And the
"glut" in oil should balance out the fears of supply disruption, he
added.