In Topsy-Turvy Market, Gas Prices Are Up Slightly

They’re up, they’re down, they’re up.

Prices at fuel pumps nationwide edged up slightly in the past month, the latest turn in an upside-down gasoline market that has defied conventional wisdom this year.

The weighted average price of all grades of gasoline nationwide rose slightly, to 109.56 cents a gallon as of Oct. 6 from 109.43 cents a gallon Sept. 22, according to the latest Lundberg Survey of 12,000 service stations.

It was the second consecutive price increase reported at a time of year when prices usually drop as demand slacks off, but it was only the latest surprise in a year that has seen prices defy prediction.

Retail prices fell all summer, usually a period of high demand and rising prices, from a peak of 118.43 cents a gallon on May 19 to a low of 109.07 cents a gallon on Sept. 8, the Lundberg Survey found.

Before that, gasoline prices spiked sharply in the spring, usually a time of slack demand, partly to catch up with higher crude oil prices and refining costs, and partly in reaction to the Exxon Valdez oil spill off Alaska.

“It’s been an extraordinary year,” said Trilby Lundberg, publisher of the survey.

Lundberg’s national averages don’t reflect regional variations. In Los Angeles, gasoline prices continued to fall through September. The average price of self-service regular unleaded, the most popular grade, was 92.76 cents a gallon on Oct. 6. Los Angeles prices peaked at 114.24 cents a gallon on May 5.

In any case, the recent nationwide increases are slight and may be a sign that gas prices are flattening out, observers said.

“At this stage, the outlook is for prices to be moderately unchanged,” said Peter Beutel, assistant director of the energy group at Elders Futures Inc. in New York. “We might see movement of 2 cents either way, but not more than that, and it’s likely to remain stable at least through Thanksgiving.

Painful Price Cuts

“The tendency is for prices to decline (from the end) of November through March . . . and I don’t see any reason why that seasonal tendency shouldn’t occur this year,” he added.

Lundberg said: “For prices to strengthen slightly on average, when throughout the year they were both rising and falling with great rapidity, seems unsurprising.

“Many of the wholesalers and retailers (who got) caught up in the price-cutting clearly hit their bottom lines beyond fat and cut into bone, and many of those then had to raise prices,” she added.

One important factor has been the cost of crude oil. After rising earlier in the year, crude prices now hover around $20 a barrel for the U.S. benchmark crude West Texas Intermediate, and economists don’t expect a major change for the rest of the year.

In addition, refiners’ profit margins recently have narrowed somewhat, said Thomas Burns, manager of economics at Chevron Corp. in San Francisco. “So there’s some impetus to see slightly higher gasoline prices, but not a lot, especially as we move out of the peak season,” he added.

Prices spurted in April and May, partly in anticipation of shortages due to the tanker accident in Alaska. Without the spill, prices may have risen anyway, but at a much slower rate more in keeping with the season.

Meanwhile, some observers had predicted gasoline shortages for the summer, partly as a result of increased demand for higher grades of gasoline and partly because of more stringent federal vapor regulations that threatened to restrict supply. Those conditions led refiners to step up operations to meet expected demand, and many refineries ran at well over 90% throughout the summer.

But the unexpectedly high prices may have hurt demand. “The much-vaunted summer driving season that was expected to be tight not only in the U.S., but also worldwide, never came to pass,” Burns said.

Some drivers may have shifted from higher grades of gasoline, and imported fuels were readily available to meet any shortfall. The net result: “An oversupply of gasoline” that led to declining prices, Burns said.

NEXT STEP Gasoline prices should hold firm at least through November, barring unforeseen disruptions in supply, economists said. Beyond that, prices normally fall through March.