Gas In State Up 10¢ In Week Investors, Weak Dollar, Refinery Problems Fuel Rise

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Continuing strength in the commodities market has propelled the Arkansas average for regular gasoline up to $2.59 per gallon.

Although experts have maintained for weeks that supply and demand levels don’t support the nearly two-month-long rise in prices, the persistent increase has been fueled by investments in the futures markets, the declining value of the dollar, refinery problems and other seemingly unrelated factors.

And consumers are feeling the pressure, said Judy Dugan, research director for Consumer Watchdog, a California-based group that identifies itself as fighting "corrupt corporations and crooked politicians." "Prices at the pump have risen for more than 50 days straight, which is a record and the reverse of other prices in the recession. This is very tough on consumers who are struggling with flat pay, fewer hours of work and layoffs," Dugan said.

Fuel costs are also pushing up food prices.

"That’s vanished money, putting the brakes on spending that would actually help economic recovery and create jobs," Dugan argued.

Higher gas prices make job hunting expensive, too, she said.

Brett Boudreaux, 17, of Little Rock drives a Toyota Camry with a 16-gallon tank that costs a little over $40 to fill up each week. He’s in the midst of a job hunt, "so gas prices going up are definitely not a good thing," said the Central High School incoming senior.

Although he lives with his mother, he pays for his own gas. Money saved from his last job at the Purple Cow is funding this summer’s driving.

"I’m definitely having trouble finding a job. Nobody wants to hire," he said. "I’ll take whatever I can get – money’s money." Boudreaux added that while gasoline was more expensive last summer, it wasn’t as big of a problem because he could get a job.

AAA reported Thursday that a gallon of regular gas in Arkansas averaged $2.590, up 10 cents in a week and 39 cents in the past 30 days. Nationally, the average is 10 cents higher. A year ago, gas prices were at $3.908 in Arkansas.

While experts have said since Memorial Day that they expected gasoline prices to peak, following the usual annual trend, it has yet to happen.

"I don’t know if there’s any relief in sight or not," said Mike Right, spokesman for AAA.

There’s been a recent uptick in wholesale gasoline prices, which quickly translates to higher prices at the pump, he said. In addition, gasoline inventories are lower than average.

"Anything is possible," he said. "Nobody predicted $4 gasoline last year." Crude oil prices have been the primary factor in driving gasoline prices, said Tom Knight, vice president of supply and trading for Texarkana, Texas-based Truman Arnold Cos.

There’s a glut of crude, though.

"The move in oil prices, I think there’s pretty wide agreement that it’s not predicated on any supply-and-demand fundamentals right now," he said. "There’s such a flow of – oh, I’ll term it investment money coming into the commodities markets right now." The continued weakness of the dollar is also holding pump prices high, he added.

Light, sweet crude oil finished up 34 cents at $71.37 Thursday on the New York Mercantile Exchange.

Typically, a $1 change in crude will cause about a 2.5-cent jump at the pumps.

"You point to the historical patterns, and the historical patterns say that typically you see oil prices peak by this time and see some retracement to lower levels by mid-summer," Knight said. "We’re not seeing it yet," but that’s dependent on a whole host of issues that are not necessarily tied to the energy markets, he said.

In addition, there have been quite a few problems at both Gulf Coast and Midwest refineries, Knight said. For example, Wednesday a 210,000-barrelper-day Valero refinery and a 76,000-barrel-per-day Marathon refinery, both in Texas City, Texas, were shut down because of a power failure, according to the Department of Energy. In addition, a unit shut down for unknown reasons at Total’s Port Arthur, Texas, 232,000-barrelper-day refinery Thursday.

Geopolitical turmoil, including violence in Nigeria and the Iranian election protests, also affect oil prices, but these factors haven’t had as great an effect on the market as in past years, said Phil Flynn, vice president and energy analyst for Chicagobased Alaron Trading Corp. That’s because there are about 6 million barrels of spare crude oil capacity not being produced because of the economic downturn. That would be more than enough to cover Iran’s 2 million to 2.5 million barrels per day of production.

Gasoline demand is also regaining traction, Flynn said.

According to the U.S. Energy Information Administration, the week ending June 12 saw a 1.1 percent increase in gasoline demand compared with the same week last year, to 9.354 million barrels per day.

Knight, Right and Flynn all agreed that it’s impossible to tell where gasoline prices are headed – although the wholesale gasoline and crude oil markets are up, which should push gasoline a little higher in the immediate future.

Consumer Watchdog
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