And prices are expected to climb even higher in the weeks ahead as the cost of crude oil continues to surge.
What most of us had painfully suspected is now official: gasoline is more expensive than it has ever been.
The average price of gasoline in Rhode Island yesterday was $3.489 a gallon, up 22 cents from last week, according to a survey of local dealers by the state’s Office of Energy Resources.
Nationally, the average price was $3.503 a gallon, according to the AAA Daily Fuel Gauge Report.
That surpasses the inflation-adjusted price of $3.413 a gallon, the average price of regular grade fuel in March 1981, according to the Energy Information Administration, the statistical branch of the U.S. Department of Energy. (The actual average price was $1.417 a gallon, and the EIA converted this to April 2008 dollars.)
Analysts say the big runup in prices over the past week is due mainly to two factors: the high price of crude oil, which is up $21 a barrel, or about 22 percent so far this year; and the annual switch to summertime fuels by refineries, which tends to push up the price of gasoline every spring.
There doesn’t seem to be any relief in sight. Yesterday, crude oil for May delivery rose 79 cents, or 0.7 percent, to settle at $117.48 a barrel on the New York Mercantile Exchange. That is up 85 percent from one year ago, and a new record close.
Neil Gamson, an economist with the EIA, said that the prices at the pump don’t yet reflect the recent increases in crude oil prices.
“Even if [crude] oil drops, you haven’t seen the gasoline pass through from those prices yet,” he said. “There’s room for it to go up.” There’s generally a lag of several weeks between changes in crude oil prices and the retail price of gasoline at the pump, he said.
A look at the numbers shows why: a year ago, the price of crude oil was about $63 a barrel. Since then, it has increased by $54 a barrel, or about $1.29 a gallon. But gasoline, which is made from crude, has gone up just 67 cents in Rhode Island, compared with a year ago.
The EIA had predicted that gasoline would peak at $3.62 a gallon this summer. But that prediction, released April 8, was based on crude oil at $104 or $105 a barrel, Gamson said.
At the current average price, Americans will spend about $1.35 billion on gasoline per day, compared with $1.1 billion a year ago, and $514 million in 2002, according to Tom Kloza, an oil industry analyst and publisher of Oil Price Information Service.
Even before the most recent crude oil surge, the EIA predicted that gasoline could hit $4 in some parts of the United States.
But Kloza, the oil analyst, said in his blog, Speaking of Oil, that $4 gasoline is “unreasonable” given a sluggish world economy and how that will affect supply and demand. He predicts the national average to be $3.50 a gallon within the next week, he wrote.
The 22-cent spike in gasoline prices over the past week is largely due to refiners making the annual switch to summer blend fuels, according to Jeff Lenard, vice president of communications for the National Association of Convenience Stores, or NACS. The Alexandria, Va.-based trade group represents the convenience store industry, which sells about 79 percent of all gasoline in the United States.
Each spring, gasoline refineries clear out their remaining stocks of winter gasoline to make summer gasoline. The shift is mandated by state and federal laws that require gasoline stations to sell fuel that is formulated differently, depending on the season. Winter gasoline evaporates more quickly, which makes it easier to start cars in cold weather. But in the summer, gasoline is made to evaporate more slowly because the fumes contribute to the formation of smog.
Making gasoline evaporate more slowly requires refiners to remove certain components from their gasoline blends, which reduces the number of gallons that can be refined from a barrel of oil. It also drives up production costs, Lenard said.
The switchover process usually begins in February when refiners begin to draw down their stocks of winter-blend gasoline. That blend usually cannot be delivered to wholesale outlets after May 1, according to the convenience store association.
At the same time, some refineries perform their annual maintenance at this time of year, which can lead to a drop in gasoline inventories.
The high price of gasoline has prompted calls for the government to take action. For example, the nonprofit group Consumer Watchdog said that President Bush should release some of the oil in the 700 million-barrel Strategic Petroleum Reserve, a stockpile of oil stored underground in Texas and Louisiana.
The New England Fuel Institute, which represents about 8,000 independent motor and heating fuel companies, has been urging Congress to pass legislation that would strengthen regulatory oversight of commodity futures trading in certain energy markets. Supporters, who call the bill “Close the Enron Loophole Act,” say it will help guard against market manipulation by speculators.
Sen. John McCain, R-Arizona, the presumptive Republican presidential nominee, has suggested that Congress institute a gas-tax holiday by suspending the 18.4-cent federal gas tax and the 24.4-cent diesel tax from Memorial Day until Labor Day.
The high prices appear to be dampening demand for gasoline. For the first 15 weeks of this year, the average demand for finished gasoline was 9.12 million barrels per day, according to the EIA. That’s down about three-quarters of 1 percent compared with the same period last year.
For years, gasoline consumption has been on a steady rise, going up an average of 1.4 percent each year since 2000. It increased 2.4 percent in 2006 and 1.6 percent in 2007.
Who are the big winners in the current price runup? Kloza said that besides the companies that own the oil, credit card companies are benefiting from the high price of gasoline. Those companies typically collect 2.5 percent of every sale, which means they receive about 9 cents on each gallon of gasoline. That is “far in excess of what the retailer makes,” Kloza wrote.
Contact the author at: [email protected]
