Buckle up! Pump prices set to take off

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The San Diego Union-Tribune (California)

The price of gasoline available to unbranded retailers rose sharply this week, prompting predictions that the long cycle of declining pump prices is ending.

Since Monday, the spot gasoline price for unbranded retailers in San Diego County has jumped about 20 cents a gallon, a dramatic increase even in an industry increasingly accustomed to volatility. The increase pushed the regional wholesale spot price to about $1.82 per gallon.

The spike has renewed suspicions among consumer groups that refiners held prices in check to defuse gasoline costs as an election issue, a contention vehemently denied by a national refiners trade group.

Local unbranded retailers, meanwhile, are struggling to deal with the higher prices.

“My cost has gone up 20 cents a gallon since Tuesday, but my pump price has only gone up 11 cents,” said Dave Whitlow, who owns Spirit Auto Center in Lakeside. “So I’m making 9 cents a gallon less.”

Whitlow added that he was reluctant to pass along the full price increase to motorists because his posted prices are already far higher than a nearby branded station.

While branded stations receive prices under contract from major oil companies, independent unbranded retailers buy their fuel in spot markets. The gasoline sold on these markets is typically surplus from the major refiners.

Rising prices in spot markets can signal one of several underlying scenarios.

Stan Mays, a spokesman for Shell Oil Products, noted that this is a generally slow time of the year for refiners and a period when many opt for maintenance, though he declined to comment on Shell‘s current operations. When shutting down for maintenance, major oil companies may tap spot markets to secure gasoline for their customers, he said.

Similarly, refinery outages can force major suppliers to make spot market purchases. No major outages have been reported, but they are often not publicly announced.

Charles Langley, who directs the gasoline monitoring project for the Utility Consumers’ Action Network, said he expected consumers to start seeing pump prices rising sharply beginning Election Day.

But as of yesterday, UCAN’s survey found that regional average prices for regular were steady at $2.37 per gallon, exactly where they were one week ago.

One month ago, UCAN’s regional average was $2.54 per gallon. Prices have generally fallen since its survey price hit $3.43 per gallon last May.

Nationally, the Energy Information Administration, part of the Department of Energy, this week reported its first uptick in gasoline prices in three months, with the average national price rising about 1 cent a gallon to an average of $2.22.

The Foundation for Taxpayer and Consumer Rights in Santa Monica said a study it had commissioned found a pattern of oil refiners cutting profits before three national elections, including this year.

Although gasoline prices did not necessarily fall in each of those pre-election periods, the consumer group said the difference between the cost of crude oil per gallon and the price of gasoline shrank in each of the pre-election periods.

Assuming the refining costs have remained constant, that would mean slimmer profits in the run up to the elections.

“The rise to record-high gasoline prices this spring unleashed a wave of justified criticism,” said Jamie Court, president of the foundation. “Now the price drop in the pre-election period, by a percentage well beyond reductions in the price of oil, smells just as bad.”

Judy Dugan, the foundation’s research director, said the lack of access to oil company operations records made charges of election-period price rigging hard to prove conclusively, but she added that companies can’t disprove the charge without opening their books.

“The oil companies will never do that on their own,” she said, “but state and federal government should certainly demand more and better public information.”

Bob Slaughter, president of the National Petrochemical and Refiners Association, dismissed the allegation of market manipulation during these periods.

“It’s baloney,” he said. “Elections occur in November, which is after the driving season, and that usually has an impact on the market and on (profit) margins.”

Slaughter said margins for refiners had declined as a result of lower gasoline demand and high inventories.

The EIA petroleum report published Thursday said that gasoline inventories fell 1.4 percent over the past week, though they were 4 percent above levels last year at this time.

The EIA also reported that demand for oil products in the previous month appeared to be rising at a “somewhat higher” than typical growth rate.

Consumer Watchdog
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