Gasoline prices fall 13 cents this week

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The San Diego Union-Tribune (California)

The remarkable decline in gasoline prices continued this week, with prices falling an additional 13 cents per gallon.

The cuts have been driven by falling prices for crude oil — themselves declining as fears of shortages diminish — and by cuts in margins reported by petroleum refiners.

The result has been what is now a two-month-long fall in local gasoline prices since mid-July, when pump prices averaged $3.32 per gallon, according to the Utility Consumers’ Action Network. That was already down from a May 12 record of $3.43.

This week, the average price was $2.70. “Never in 10 years of tracking gasoline prices have we seen them fall like this,” said Charles Langley, who oversees the UCAN gas monitoring project. “Prices are dropping like bowling balls tossed off the Coronado Bridge.”

If prices keep falling at the current rate, the decline could exceed a 78 cent drop in nine weeks last year after Hurricane Rita, according to Jonathan Cogan, a spokesman for the Energy Information Administration.

The group’s nationwide numbers show a drop of 54 cents a gallon over the past six weeks.

The sudden and persistent decline in gas prices is partly due to falling crude oil prices, said Severin Borenstein, director of the University of California Energy Institute.

In fact, he believes that a current glut of gasoline and falling crudeprices will shave 10 cents more from the retail price of gasoline.

“I think our price will level out at about $2.60 (for the next couple of months),” Borenstein said.

The fall in crude prices had already taken about 30 cents from the cost of a gallon of gasoline, he said.

Borenstein attributed the balance of the decline in pump prices to shrinking refinery margins, which reflect the difference between the cost of crude oil needed to produce a gallon of gas and the price at the pump.

The margins includes both profit and costs associated with gasoline production.

Borenstein noted that refinery margins had risen to 40 cents per gallon or more for much of the summer, and have now fallen down to single digits.

“Refinery margins had been higher (over the summer) than they were over the last decade,” he said.

The higher margins during the summer were caused by a tight balance between gasoline supply and demand, according to Borenstein.

The rapid fall in margins is the likely result of a decline in gasoline demand, though he quickly added that economists don’t have access to reliable data on recent fuel consumption.

Refiners have also begun a shift to winter blends of gasoline, which produce more fuel from a barrel of oil than summer blends.

Beyond factors of supply and demand, Borenstein said it was possible that some of the run-up and recent decline in fuel prices was the product of “strategic behavior” by petroleum companies.

“But I suspect that is not a big part of the story,” he said.

The Foundation for Taxpayer and Consumer Rights in Santa Monica believes that manipulation of state gasoline supply did play a role in rising prices here.

Judy Dugan, research director for the foundation, said inventory and production data from the California Energy Commission showed increases in gasoline for export at critical points during the summer run-up, which she said was evidence of market manipulation.

But a spokeswoman for the Western States Petroleum Association insisted the decline in gasoline pump prices was largely the result of falling crude oil prices.

“Market conditions are always what it comes down to,” said Anita Mangels, who speaks for the trade association.

Oil prices yesterday fell by more than $1 a barrel and left oil prices down 4 percent over the past week.

Light sweet crude for November delivery declined to $60.55 a barrel on the New York Mercantile Exchange. Crude oil futures have plummeted since peaking during trading on July 14 at $78.40 a barrel.

Analysts said ample global supplies at a time of year when demand is weak could prompt more selling — at least until winter heating demand kicks in.

Concerns about slowing economic growth in the United States and receding fears about this year’s Atlantic hurricane season also have helped to send oil prices into a downward spiral of 23 percent since the middle of July.

Houston-based oil consultant Dan Lippe of Petral Worldwide said that with worldwide supplies growing, he wouldn’t be surprised to see oil back below $50 a barrel, and perhaps as low as $40, within a few years — if not sooner.

An unexpected supply shock, of course, could drive oil prices right back above $70, he said.

Other analysts noted that speculators could dump oil positions if a mild winter reduces heating oil demand, further weakening prices.

The Organization of Petroleum Exporting Countries (OPEC) recently reduced its demand forecast for the remainder of the year, citing weakening demand in the United States, among other factors, and some cartel members have insinuated that oil prices below $60 could prompt talk of a production cut.

But Morgan Stanley said in a research note yesterday that “there is already some evidence that OPEC has reduced production from the Middle East and is committed to supporting high prices.”
The Associated Press contributed to this report.

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