Little Relief Seen in Gas Prices Despite Lower Crude Costs
Motorists gearing up for the spring and summer driving seasons might expect gasoline prices to fall along with crude oil prices that have nose-dived since the beginning of the year.
But several analysts doubt that gasoline prices will fall much as the weather warms and more drivers hit the road.
Gasoline prices have proven surprisingly durable despite the plunge in the cost of a barrel of oil from more than $23 per barrel in January to $17.99 on Thursday.
In the same time, average prices for all grades of gasoline at the national level have edged up to about $1.14 per gallon on April 20 from $1.13 on Jan. 19, according to the Lundberg Survey of 13,000 service stations.
In Los Angeles, prices increased to 99.3 cents per gallon on April 20 from 92.16 cents per gallon Jan. 19 for regular unleaded self-serve gasoline, the most popular grade, Lundberg reported.
Critics accuse oil refiners and marketers of taking advantage of low crude prices to fatten their profits by keeping product prices high.
The refiner’s spread--or the difference between the cost of a barrel of crude and the price of the refined products that can be made from it--grew from about $1 per barrel in February to about $5 last week at a typical upgraded Gulf Coast refinery, said Bernard J. Picchi, an industry analyst with Salomon Bros. in New York.
“Companies use these opportunities to expand their margins,” said consumer advocate Ed Rothschild with Citizen Action.
Judy Roberson, who heads an Arco dealers group in Santa Barbara, put it another way: “It’s the public that’s getting the hose as refiners keep prices up until the public forces them to drop them.”
For its part, the industry denied keeping prices artificially high.
Industry officials argue that crude prices are only one factor in setting product prices, though the dominant one. The recent fall in crude prices coincides with an increase in costs arising from routine plant maintenance and tougher environmental restrictions.
In addition, demand is just now increasing for gasoline to be delivered in anticipation of the spring and summer driving season, while refining capacity remains tight in the United States--all of which has kept prices strong.
How soon will gas prices follow crude prices?
“Retail prices normally follow wholesale prices by 30 to 45 days,” said Peter Beutel, an analyst with Elders Futures Inc. in New York. But, he added, “I’m hard pressed to fully account for the lag in responsiveness by the retail sector to what’s been going on in wholesale.”
“The industry calls it a lag effect, but it is usually much longer on the way down than on the way up,” added Rothschild.
Industry officials say gasoline prices will eventually fall into line.
“With crude prices going down, gasoline prices will go down, barring unforeseen disruptions,” said Sterten McDonald, vice president of distribution with Atlantic Richfield Co.'s Arco Products Co.
The question, is how much? McDonald would not speculate. But some observers doubted that prices would fall more than a penny or two per gallon.
“I don’t see prices falling,” said Fereidun Fesharaki, who heads the energy program at the government-funded East-West Center in Honolulu, Hawaii. “There may be some minor decline this month and next as crude prices continue to go down, but come July and August, I expect a rebound and prices to stay strong.”
McDonald J. Beavers, whose Whitney Leigh Corp. tracks gasoline prices, said that prices typically spurt a nickel per gallon during the peak summer months.
Complicating the matter is the question of where crude prices will go in the next few months. On Thursday, the Organization of Petroleum Exporting Countries agreed to reduce by 1.45 million barrels its current crude oil production of 23.5 million barrels per day in a move to bolster worldwide oil prices.
If the agreement holds until OPEC’s July 25 meeting, it could blunt the surplus of crude that has depressed prices.
But traders on the New York Mercantile Exchange apparently doubted OPEC’s resolve, and sent the June contract for West Texas Intermediate, the benchmark grade of U.S. crude, down 69 cents to close at $17.99 a barrel. Analysts feel that crude could trade even lower. “I think prices will be volatile within a tight band,” Beutel said.
CRUDE PRICES DROP . . .WHILE GASOLINE CLIMBS Price per barrel of West Texas Intermediate crude futures. Prices per gallon, weighted average of all grades of gasoline.