Pump Prices Jump as Refineries Spring for Ethanol
On the first day of spring, it was starting to look a lot like summer at the gas pump.
The nationwide retail price for a gallon of self-serve regular gasoline rose 13.8 cents to $2.504 in the week ended Monday -- topping the $2.50 mark for the first time in five months, according to the federal government’s weekly survey. In California, the statewide average jumped 10.3 cents to $2.635 a gallon during the same period.
The latest increase puts the nationwide average almost 27 cents above the cost of gasoline at the beginning of the year, while the California average is 42 cents higher, according to the survey by the Energy Information Administration, an arm of the Energy Department.
This time, oil is not to blame. U.S. crude oil supplies are plentiful, and oil futures prices have fluctuated but are little changed from where they were a month ago when retail gasoline prices began climbing in most parts of the country. On Monday, the cost of U.S. benchmark light, sweet crude for April delivery plunged $2.35 to $60.42 a barrel on the New York Mercantile Exchange.
Instead, analysts blamed the steep rise in retail gasoline prices on nervousness in the futures market over gasoline supplies. The concern is driven by refinery maintenance and changes in fuel formulas that will hit the industry in the coming weeks just as it gears up for the summer driving season. Gasoline for April delivery closed Monday at $1.83 a gallon, down 3 cents for the day but up nearly 21 cents so far this month.
Some of the recent uptick in gasoline stems from the industry’s yearly move from so-called winter fuel to the formula used in the summer -- a slightly different blend meant to keep emissions in check during higher temperatures, said Tom Kloza, chief oil analyst for the Oil Price Information Service, a price-tracking company.
“This is the usual spring surge ... but maybe a bit more than usual because we are still feeling a little bit of the effects from Hurricane Katrina, and we’re seeing some parts of the country struggle with ethanol blends,” he said.
Because of ongoing worries about future hurricanes, Kloza added, “this could be the summer where we remain inflated by a fear factor in gasoline.... We’re going to see prices stay in the $2.50 to $2.75 range, and then it will be ‘let’s watch the weather.’ ”
Another major focus of the gasoline market’s anxiety is the supply of ethanol, a corn-based fuel additive that will be in sharply higher demand this year because many large refiners are voluntarily removing methyl tertiary butyl ether, or MTBE, from gasoline, according to Andrew Lipow, a Houston-based energy consultant.
Refiners are rushing to switch to ethanol because of what they see as a growing risk of lawsuits over the use of MTBE, which is banned in California and several other states because of its tendency to pollute groundwater. The additive is still blended into about 11% of U.S. gasoline.
The refiners are making the transition all at once, right before the summer driving season and before ethanol producers are ramped up to accommodate them.
“Do we have enough ethanol? That’s what the market is worried about,” Lipow said.
In a report last month, the government noted that the complexity of the switch “may give rise to local imbalances between supply and demand, and associated price surges during the change.” As demand rises into the summer, the report added, “the tight supply situation is not likely to ease significantly, leaving the market exposed to the increased potential for price volatility,” especially in traditional MTBE markets such as Texas and some East Coast areas.
The Renewable Fuels Assn., a trade group for ethanol makers, acknowledged last week that ethanol supplies “will be strained” because of the refiners’ sudden push to remove MTBE. But the group said some refiners may back off and switch to ethanol in phases to avoid shortages.
“This is no time to create unnecessary fears in the marketplace,” trade group president Bob Dinneen said in a March 14 letter to the Energy Information Administration.
As for today’s gasoline supplies, they are roughly equal to year-ago levels despite an unusually active season for refinery maintenance. Imports have been robust and have helped offset the loss of production from refineries that were down for repairs and tuneups.
Relatively robust fuel supplies probably won’t help much, according to Tyson Slocum, acting energy program director for Public Citizen, a Washington-based consumer advocacy group. That’s because gasoline demand is rising but domestic production isn’t keeping pace and motorists have limited transportation and alternative fuel options.
“You’re definitely going to see [gasoline] prices continue to go higher because no one has done anything to solve any of the underlying problems,” Slocum said.
