Gasoline prices have been flirting in recent days with Arkansas’ average record of $3.18 a gallon set in May.
The national average record was set Sunday at $3.285, though it has dropped a penny since.
Soon refiners will shut down for maintenance and switch over to summer gasoline blends, fueling the traditional spring price increase, experts cautioned.
"And this hits consumers: If they don’t get their pockets picked by oil profits, they’ll get their pockets picked by refining profits," said Judy Dugan, research director for Consumer Watchdog, an advocacy group.
AAA reported Thursday that an average gallon of regular in Arkansas cost $3.172, up from $3.167 a week ago, and 20 cents higher than a month ago. Arkansans were paying $2.427 a gallon a year ago.
The Pine Bluff and Texarkana metro areas broke their records last weekend, setting new highs of $3.213 and $3.168, respectively.
Crude oil for May delivery fell 70 cents to settle at $101.84 a barrel on the New York Mercantile Exchange on Thursday.
Oil has fallen about 9 percent since setting a record of $111.80 on Monday.
Thus, "you can expect lower prices at the pump in the next day or two," said James Williams, an energy economist who owns WTRG Economics near Russellville. For every $1 crude falls or rises, gasoline should follow with a corresponding 2.5 cents, he said.
Meantime, prices were as high as $3.29 in Eureka Springs and west Little Rock on Thursday morning, according to Arkansasgasprices.com and LittleRockgasprices.com, Web sites where consumers can report gas station prices. Stations in Jacksonville, Conway and Jonesboro were still as low as $3.05.
DELIVERY RATE INCREASE
High prices will force Little Rock-based Chase Courier Inc. to initiate its first rate increase in years, said President John Coleman. He hires independent contractors, who are responsible for their own vehicles and fuel, to make about 150 deliveries a day. So far, he’s only added a fuel surcharge to deliveries outside the Little Rock area, but now he’ll be increasing city delivery costs from $10 up to $13.
"I’ve held off for quite a while," Coleman said. But "we only have a small profit margin, and fuel is the No. 1 impact." So far this year, supply-anddemand issues have played little role in the price of gasoline, experts said.
According to the U.S. Energy Information Agency, gasoline demand for the week ending March 14 was down 1.8 percent from a year earlier, and gasoline supplies were near a 15-year high.
"We’re swimming in the stuff," Williams said.
Investors have been hedging against the falling dollar by buying commodities, such as oil and gold. But the Federal Reserve Board intervened this week by facilitating the sale of faltering investment bank Bear Stearns and cutting a key interest rate. That bolstered investors’ faith in the economy, said Phil Flynn, energy analyst for Chicago-based Alaron Trading Corp.
As a result, the price of oil started falling this week.
"The commodity bubble has burst, and that’s good news for consumers who have really been paying through the nose," Flynn said. "We’re going to see a little relief at the pump, thank goodness, because the price of oil has come down quite a bit." Investors are finally seeing the light at the end of the tunnel for the current financial crisis, Flynn said. Wednesday saw the biggest selloff of crude oil since the Persian Gulf War in 1991 when investors quickly realized that it was going to be a short war without much impact on production, he said.
SHORT-TERM RELIEF
Tom Kloza, director of the Wall, N.J.-based Oil Price Information Service, wrote in an email that although the coming days should see falling prices, this is most likely a short-term correction.
"We’ll get a bit of a respite, but gasoline should move higher, independent of the price of crude, in April," Kloza wrote.
That’s because the spring season usually sees a price bump as refineries switch over to summer blends and demand for gasoline increases as driving season begins, Kloza said. Gasoline supplies should drop in the next 30 days as refineries slow production and shut down for maintenance.
"I think April is a good bet for higher prices, but the remainder of March has mixed prospects," Kloza wrote.
Right now, crude oil is making up about 73 percent of the price of a gallon of gasoline, Williams said, leaving marketers and refiners without much profit. "Refiners are making virtually nothing, retailers hardly ever make anything, and state, federal and local taxes run about 15 percent," he said. "The big increase, in fact all of the increase from a year ago, is due to higher crude prices." In May, when Arkansas set its record price of $3.18 a gallon, it was largely because of high refining margins with crude oil at about $60 and barrels of gasoline going for about $35 higher. With spring price increases coming, crude oil will have to continue to soften to keep gasoline costs relatively low, Williams said.
"If crude prices go back up, gasoline prices will hold at this high level," Williams said, and may continue to go up by at least 20 cents.
Dugan, with Consumer Watchdog, said history shows that refiners use every spring to raise profits. This year, despite a weak economy, should be no different, she said.
"Because they’re able to charge more when the supply is lower, we’re now seeing refinery output at a very low level for this time of year, and it’s only going to get lower," Dugan said.
According to the Energy Information Administration, U.S. gasoline refining output in the week finishing March 14 was down about 1.5 percent compared with the corresponding period a year earlier.
There’s not enough competition in the refining business, Dugan said, and refiners are able to make huge profits every spring because of that.
"Consumers really need relief," she said. "But I think that refiners’ need to boost their profits will trump anything consumers need."
