Skip to comments.Gas price decline is a temporary aberration
Posted on 02/10/2008 9:09:28 PM PST by kellynla
Gas prices have dipped in recent weeks, but don't get used to it.
Oil industry analysts warn gas prices will bounce by spring as refiners and gas stations switch from winter- to summer-blend fuels. Fuel recipes are tweaked to reduce smog in hot summer months.
Starting as early as this month in Southern California, gas increases could push the average national price, which peaked at $3.23 last May, to a record $3.50 a gallon or more by June.
That would be 17 percent higher than today's national average of just under $3 a gallon already about 80 cents a gallon higher than year-ago levels because of the surge in crude oil prices that briefly topped $100 a barrel. Analysts say prices in urban areas on each coast could approach $4 a gallon this year.
Such a prospect makes business owners like Desmond Sandlin cringe, because it can mean the difference between profit and no profit.
Every time the price per gallon drops a few pennies, it helps his Camarillo business. But when prices soar, it's nail-biting time.
Sandlin, owner of Roadrunner Shuttle, pays $24,000 to $26,000 weekly in fuel costs to operate his fleet of about 50 vans, four limousines and six buses.
Fuel expenses ate up 18 to 20 percent of total gross sales a few years ago, but now it's about 30 to 35 percent. The company hasn't been profitable for the past six or seven months, but it's pretty close to breaking even, Sandlin said.
"Gas prices have killed us in the last couple of years," he said.
To recoup some of his costs, he's trying to run more efficient vehicles.
High gas prices have one positive result for the company more people use the ride share service. On those vans, Road Runner Shuttle has been trying to squeeze four pickups per trip instead of the average three.
Raising rates might be next. Sandlin has done that just once in the past two years, but if prices reach $3.50 or $3.60 this summer, which he anticipates, he says he's going to have to boost rates.
Mounting pocketbook issue
In Ventura County, gas prices have been on the decline for the past few weeks. On Monday, the average price of regular unleaded was $3.08 a gallon, a 28-cent decline from nearly a month ago, according to The Star's weekly gas survey. At some stations, prices have dropped to less than $3.
The jump in pump prices in recent years has been tied to increased oil prices. In 2005, the price of crude oil averaged $50.23 per barrel and accounted for about 53 percent of the cost of a gallon of regular unleaded, according to the U.S. Energy Information Administration. Other contributing costs were taxes, 19 percent; refining, 19 percent; and distribution and marketing, 9 percent. That year, the national average gas price hit a high of $2.21 a gallon, before Hurricane Katrina caused prices to spike.
In December 2007, crude oil prices then near $100 a barrel accounted for 68 percent of the cost of gas. That reduced the role of other factors: taxes, 13 percent; distribution and marketing, 11 percent; and refining, 8 percent. The national average gas price peaked last year at $3.21, according to the Automobile Club of Southern California.
The $1 a gallon jump over two years can be mostly attributed to the doubling of oil prices during that span.
At a Shell station in Camarillo, the recent price decline came as a relief to motorists filling up. Still, they worry what spring will bring.
Current prices already are too much to handle for Rylan Sluiter, a Camarillo resident who attends CSU, Channel Islands.
On a recent fill-up, the 19-year-old put $7 worth of gas into his Dodge Caliber so he could have money to shop at the Camarillo Premium Outlets.
Many students, already strapped from rising costs of tuition and textbooks, can relate to making sacrifices by curtailing spending and driving. Corey Brittain of Lompoc tries to car pool whenever he can. Since he began attending CSUCI, he's learned to cook to cut back on dining out.
Rising fuel costs are going to bankrupt people who are already extended, said Andy Hornal, a service technician with Gatekeeper Systems in Irvine. He travels 700 to 1,000 miles a week for work, and the company has a fleet of 10 to 15 vans. When prices go up, it's a concern for the company, he said.
California motorists have grown accustomed to paying more than $3 a gallon the result of market speculation and global demand for oil.
Rapid growth of automobile ownership in China and India has fueled demand and driven prices upward, said Jack Kyser, chief economist at the Los Angeles County Economic Development Corp.
"They're in a rush to develop, and they're not looking at what's most fuel-efficient," Kyser said.
So why have prices retreated in recent weeks? The decline in fuel prices is seasonal. Prices are typically lowest at the beginning of the year because demand is lower.
Prices typically peak in May, fall back down, and then spike again in August, said Doug MacIntyre, senior oil marketing analyst for the Energy Information Administration.
MacIntyre predicts that the national average will slide to less than $3 a gallon by the end of the year.
High prices for several consecutive months, combined with concerns about the economy, might be causing motorists to conserve their driving, MacIntrye added.
At the same time, crude oil prices, which peaked at $100 a barrel at the start of the year, settled at $91.77 a barrel Friday on the New York Mercantile Exchange, which translates to a roughly 20-cent drop at the pump.
MacIntyre projects the national average to peak around $3.40 a gallon this year. In California, gas prices typically run 20 cents to 30 cents higher than the national average, mostly because of emission standards and taxes. Ventura County's record average price for unleaded gasoline is $3.49 a gallon, reached last May.
MacIntyre is not forecasting a $4 average across any region, but there might be a few stations in some high-cost areas that hit that level.
However, demand is down, and U.S. gas inventories have hit a 14-year high, according to AAA Minneapolis, which forecasts a 50-cent drop in prices in the spring.
"There's a lot of speculation out there, and it's really impossible to say what can happen tomorrow," said Marie Montgomery, a spokesperson for the Automobile Club of Southern California. "If it did drop 50 cents, it would defy each of the last eight years."
Many factors could influence prices, causing them to soar even higher than expected. For example, prices could jump if the Organization of the Petroleum Exporting Countries cuts production at its next meeting or if there is an outbreak of refinery problems.
On the flip side, if the economy's downturn gets worse, demand might drop as people stay home to save money. If people take vacations closer to home or forego trips altogether, it could mean lower than expected prices, MacIntyre said.
However, one possible cause for the anticipated price spike this spring might be out of motorists' hands.
Some analysts say the cause is linked to a shortage of alkylate, a little-known and expensive gasoline additive that some in the industry are calling "liquid gold." It has become a must-have ingredient since refiners stopped using MTBE, a potentially cancer-causing additive that was found to be seeping into groundwater.
The alkylate shortage has become the most important driver of summer gas prices, said Doug Leggate, an analyst at Citigroup Global Markets. "Supply of (alkylate) will set the price of summer gasoline not inventory levels."
I sure hope so. I want to get some wells drilled with $80+/bbl oil.
And if we didn’t have to bother with “blends” in the first place, imagine how much gasoline prices would go down!
If GWB wanted to go out on a high note, he might declare an “emergency” sufficient to require ending the whole “oxygenation” regime right now.
The oxygenation requirements are bogus. Modern cars have fuel injection systems that automatically adjust the fuel air mixture to maximize combustion. It’s the old cars that are disappearing from the road that benefit from oxygenated gasoline.
Where is the supply shrinking to cause this?
Gas prices are constantly in flux, and can therefore always be classified as "temporary abberations."
Eh! No Problemo!
Hire illegal pump jockeys for the “job American’s won’t do”
And you can set your pumps at $1.99.
Yes, but isn’t it the alkylation that will drive the spring rise, not oxygenation? The fuel-air mixture doesn’t affect the aromatic/aliphatic ratio, to my knowledge.
I don’t care, really, about gas prices. It’s just that, once I hit “reply” I had to sign in. Now, I can’t move forward unless I write something and post it. (unless I back out and start over) So here goes...
Gasoline, for my machine.
I’ll believe it when I see it. As long as people think they’re in a recession and it’s not, people will be putting their money where it belongs— in the bank.
People are spending less.
Now... this usually does happen every year, and it’s a perfect example of what happens when overregulation takes its toll. Teddy Roosevelt never would have imagined the sort of bureaucracy that has grown out of his idea, and I doubt he’d be all that pleased.
Not sure exactly how much more the dollar will drop in value, but, the US is consuming 3-5% less in gas now than a year ago. With the current recession, the price of gas should drop even more, depends on exactly how much the hedge fund dudes bet the other way.
Well if the “summer blend” doesn’t raise prices enough, I’m sure the oil companies will draw straws to see who lights their refinery on fire this time to raise prices even more.
First week in Feb 2008 - Gasoline Consumption 8,984,000 BPD
First week in Feb 2007 - Gasoline Consumption 9,074,000 BPD
A decline of less than one percent.
U.S. Weekly Finished Motor Gasoline Product Supplied
My comment was based upon 2 different store owners in my area, that’s all (CITGO & Shell), not the gov numbers. There sales in gas, dollar wise, were a little higher, but their total gallons sold last quarter of 2007 was down and more people have moved into the area.
The truth is Democrats are doing all they can to destroy the American economy. We need to be drilling for our own oil, building our own refineries, building nuclear power plants and using clean coal.
Republicans are doing a lousy job of informing Americans that it is the fault of Democrats we have this energy "crisis".
But you referenced the US, not a couple local stores. And more people continue to avoid CITGO because of Chavez further skewing the results.
For the year-to-date sales, US consumption is down about 1/2 of 1%. If you look at last quarter 2007 versus 2006, sales are down less than 1/10 of 1%.
Hey, I’m driving less as I combine trips & do more shopping online. It’s marginal but I’m sure that if enough people are doing it the gasoline retailers are noticing. Classic economic theory in action.
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