Despite drilling, gas prices still high
Feb 25, 2013 at 9:36 PM
Average retail gasoline prices in Ohio have fallen 11.0 cents per gallon in the past week, averaging $3.69 per gallon Sunday, according to GasBuddy's daily survey of 5,345 gas outlets in Ohio.
This compares with the national average that has increased 2.9 cents per gallon in the last week to $3.72 per gallon, according to gasoline price website GasBuddy.com.
However, by Monday, prices were up again -- by 20 cents in some places. The average price for a gallon of regular unleaded gasoline in Norwalk was $3.89.
Including the change in gas prices in Ohio during the past week, prices Sunday were 2.5 cents per gallon higher than the same day one year ago and are 28.7 cents per gallon higher than a month ago. The national average has increased 42.0 cents per gallon during the last month and stands 9.1 cents per gallon higher than this day one year ago.
"The streak is over," GasBuddy.com Senior Petroleum Analyst Patrick DeHaan said Monday morning, prior to the latest jump in prices. "GasBuddy data showed the national average rising for 32 consecutive days, starting Jan. 20 at $3.265 per gallon, and ending Feb. 21 at $3.733 per gallon. The tide has now turned and the national average has dropped two days straight. This is certainly excellent news for disillusioned motorists but I would caution them not to get overly thrilled as prices may linger near these levels for some time."
Like locusts ravaging fertile crops, gasoline prices are soaring again and eating away at the purchasing power of ordinary Americans. And again, financial speculators appear to be a big part of the story.
Last week, when the national average pump price hit $3.74 for a gallon of unleaded gasoline, the price was a sharp 44 cents per gallon from the previous, according to the AAA's Fuel Gauge Report.
AAA's figures show the streak was higher than GasBuddy's report.
"It's the 33rd day in a row that we've seen a consecutive increase" in gasoline prices, said Nancy White, a spokeswoman for AAA, who said there are several explanations but that none seem overly convincing.
More than a passing pain, rising gasoline prices act like a tax on consumers, harming the economy by whittling away at the amount of money the consumer can spend on other things. Gasoline expenditures as a percentage of U.S. household income hit three-decade highs in 2012, and the recent spike suggests 2013 might not be much better.
It's not all supply or demand.
The rising gasoline prices come even as the United States now produces more than half the oil it consumes. In fact, the nearly 800,000 barrel-per-day increase in U.S. production output from 2011 to 2012 reflected the largest one-year jump since oil drilling began in 1859.
The U.S. Energy Information Administration projects that U.S. oil production will rise from 6.89 million barrels per day in November 2012 to 8.15 million by December 2014. At the same time, the International Energy Agency has lowered its estimates for global demand for oil. Lacking demand, OPEC, the oil-exporters cartel, has reduced production.
It all argues for lower oil prices, or at least less volatility in the price of oil and thus gasoline.
Enter financial speculation. Commercial end-users of oil such as airlines and trucking companies who once dominated 70 percent of the market for market for future deliveries of oil now represent just 30 percent. Non-commercial financial speculators now dominate 70 percent of the market. The trading is dominated by Wall Street banks, hedge funds and other financial institutions that have no intention to take delivery of the oil needed to make gasoline.
"It's speculators who are moving markets," said Bart Chilton, a commissioner at the Commodity Futures Trading Commission. "They are almost exclusively the entire market at certain periods of time."
Chilton led the charge in seeking limits that reduced how much of the market for crude oil any single trader or company could control. Armed with the 2010 revamp of financial regulation, the commission sought to establish hard limits, but that effort is now bogged down in the courts.
"The more textured view would show you that at certain times it is not a question to whether or not speculators are moving the market. Speculators are the market," he said.
Other forces are at work as well.
Nearly 1 million barrels a day of capacity has been turned off, with eight refinery closures or announced closures on the U.S. East Coast and the Caribbean over the past year.
"What the market is really pricing in is potentially a new era of tighter gasoline supplies that are heavily reliant on imports," said John Kilduff, a partner in the energy trading firm Again Capital in New York. "We might not ever turn back from these high prices. This isn't episodic."
Another factor is that refiners that turn oil into gasoline have chosen to switch to their summer blends much earlier than normal. This switch, which stops or slows production for a period of time, usually happens closer to the spring break driving season in mid- to late March.
Last year, gasoline prices peaked on April 5 and 6, so AAA is hoping that an early switchover may also mean an early peak to gasoline prices and that they may tumble later in the year.
The trade association for refiners, the American Fuel & Petrochemical Manufacturers, is unaware of any large-scale early switch away from winter fuels, said Joanne Shore, the group's chief industry analyst.
"We don't have information on that explicitly," she said, noting that the association doesn't keep real-time production data. California, Shore said, switches to summer fuels earlier than the rest of the nation, adding that some California refiners are undergoing maintenance and it's been "one of the factors that has tightened (up) the Southern California market a bit."
By Kevin G. Hall - McClatchy Newspapers (MCT)
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