Crude reality: Fuel prices still up as oil falls
Unseasonably warm weather pushed oil prices to their lowest levels in 19 months Wednesday, but the inconvenient truth for California motorists is that gasoline prices haven’t fallen in tandem.
Experts anticipate that the state’s pump prices will come down in the next few weeks as the recent drop in crude finally makes its way to the street. But that’s cold comfort for motorists such as Michael Latman, who was paying more than $40 to fill up his BMW at a Shell station in downtown Los Angeles.
“Gas supplies aren’t a problem, and oil is going down, so our prices should go down,” groused Latman, a software engineer. “I realize that it’s not supposed to happen immediately, but the feeling I have now is that the only time pump prices go down is before an election.”
Motorists aren’t the only ones perplexed.
Oil, which fell $1.62 to $54.02 a barrel Wednesday in New York futures trading, is down 30% from its July high of $77.03 -- including a 15% slide in the last three weeks. Wednesday’s close was the lowest since June 10, 2005.
Gas prices in the Golden State, meanwhile, have risen steadily since early November and are at their highest level -- an average of $2.632 a gallon statewide -- since Oct. 2.
“From looking at pump prices, you’d think the price of crude oil was going up and we were in a tight market,” said Rob Schlichting, a spokesman for the California Energy Commission. “It’s not acting as a typical market should act.”
Moreover, gas prices have been slipping around the country. Gasoline refined and sold in California typically is more expensive than elsewhere in the U.S. because of the state’s special antipollution requirements and higher taxes.
But consumer advocates say that doesn’t explain why the prices are moving in opposite directions.
“There’s no excuse for that,” said Charles Langley of the Utility Consumers’ Action Network in San Diego. “Prices in L.A. should be dropping like a box of rocks right now, and it’s not happening.”
Why it’s not is a bit of a mystery, especially because this is usually the time of year when gas prices are lowest.
Gasoline stockpiles are tight along the West Coast, experts note, apparently because of refinery outages in Washington state, which at one point pushed wholesale prices in Portland, Ore., above those in California.
But within California, production of the state’s unique blend of gas is running 5% ahead of a year earlier and inventories are 8% higher than at the beginning of 2006, the energy commission reported Wednesday.
The higher prices to the north probably caused some of that gasoline to be shipped out of state, Schlichting said.
Now, with prices stubbornly high in California, oil companies are scouring Asia and other foreign markets for gasoline, energy consultant Andrew Lipow said. The resulting increase in supply should give California motorists some relief.
“You will see retail prices dropping in the next few weeks,” said Tom Kloza, chief oil analyst for Oil Price Information Service. “I would suspect that you will see retail prices for leading-edge companies like Costco to fall to $2.25 a gallon or so.”
That can’t happen soon enough for Deborah Aschheim, who was filling up at a Mobil station in Pasadena.
“Appearances can be deceiving, but it looks like those companies are taking advantage of the situation and raising prices,” she said of oil companies.
David Harper, who was filling up nearby, said, “They definitely have us over a barrel.”
High oil prices have translated into robust oil company profits over the last several quarters. But on Wednesday, Chevron Corp. said oil’s dramatic decline would put a damper on fourth-quarter earnings, echoing similar warnings from BP and ConocoPhillips.
Chevron, based in San Ramon, Calif., and a leading gasoline retailer in California, referred questions on gasoline pricing to an industry trade group.
“I don’t have a clue why crude prices are down and gasoline has or hasn’t followed suit in different parts of the country. The market determines that,” said Joseph Sparano, president of the Western States Petroleum Assn. “Crude oil and gas prices move in the same direction. They just don’t move in lock step.”
Wednesday’s drop in prices followed a government report showing that inventories of gasoline, heating oil and other fuels rose for the fourth straight week while demand fell 4%. Overall crude oil stockpiles fell.
The drop in demand has been due in large part to a reduced need for heating oil, the primary driver of oil prices this time of year.
Last year was the warmest on record in the U.S., and other parts of the world also are recording higher temperatures.
“We’ve taken winter out of the price of oil,” said Phil Flynn, senior market analyst at Alaron Trading Corp. in Chicago.
That has allowed futures traders to ignore troubling geopolitical events, such as Venezuelan President Hugo Chavez’s stated intent to nationalize at least part of his nation’s oil industry.