Gas prices

  

Gas prices are like the weather: All the complaining in the world isn’t going to change anything.


And while weather happens because of myriad complex factors than even scientists don’t fully understand, the dynamics behind the rise and fall of oil and gasoline prices is nearly as mysterious and also due to a whole range of influences.

Why, for instance, do gas station prices shoot up almost instantly when the price oil inches up, but take their time moving in the other direction when oil gets cheaper? Blame free enterprise, says Patrick DeHaan, senior petroleum analyst for the Minnesota-based industry pump watchdog GasBuddy.

The price of a barrel of crude, which peaked in late April at nearly $114, had dropped to just under $100 as of Friday afternoon, though gasoline dealer marquees until recently have been slow to reflect the change.

Prices are finally beginning to drop, however. The least expensive gallon of regular gas to be found in Brownsville on Friday, according to the GasBuddy website, was $3.68 at the Sam’s Club on South Jackson Road. The Friday average for the Rio Grande Valley was $3.78, according to GasBuddy. The week before it was $3.87. This doesn’t change the fact that gas prices are “very quick to go up and very slow to go down,” DeHaan said.

The reason retailers raise their prices at the first hint of higher oil futures is, no surprise, to help offset the higher cost of the next load of gas they buy — and in some cases raise cash to buy that next load. Retailers aren’t in a hurry to lower their prices when oil goes down because, no surprise, they want to wring a few more dollars out of the spike as long as possible. From February until last week, prices were rising fast and stations were making little if any money, DeHaan said. Now, with cheaper oil pulling down gas prices, a brief window of opportunity has opened.

“When the price is falling, stations use that time to recoup any losses and make some money,” he said. “It’s been standard business practice for decades.”

While it’s easy to blame station owners for the fact that it costs $100 to fill up your Escalade, higher fuel prices aren’t their idea, DeHaan said.

“Station owners hate high gas prices just as much if not more than motorists,” he said. “Not only do they have to deal with motorists’ frustration, but percentage-based credit card fees go up and they make even less. Ninety-five to a hundred percent of station owners would say they’d rather have prices stay closer to $2 a gallon.”

While it would be fine with most drivers if retailers lost money on gas sales, it would mean fewer stations, fewer jobs and less competition, which would lead to even higher gas prices, DeHaan said. If not retailers, then, who’s to blame for the current situation?

It depends on when you ask. In February it was the fighting in Libya and fears it would spread to other Mideast countries. In March it was the weakening dollar. Later in March, and through April and May, it was because refineries — some of which were off line for maintenance — were producing less gas and the supply was dwindling. Traders eventually noticed, panicked and prices took off.

The last couple of weeks have seen the panic begin to recede, and gas prices are gradually following suit. A stronger dollar is one reason, along with lessening likelihood Louisiana refineries along the rain-swollen Mississippi River will have to be shut down, as a result of the Army Corps of Engineers decision to open a major spillway and redirect the flooding.

DeHaan said much has been made of a drop in demand for gasoline, though in reality demand has decrease only 1 or 2 percent — not enough to make much of a difference in prices.

“Basically this is a tug of war,” he said. “For February, March and April the tug was easily being won by high prices,” DeHaan said. “Nine out of ten factors were pressuring crude oil prices higher. Now there many more things pulling prices down.”

In January, DeHaan was quoted in an Ohio newspaper predicting gas prices would peak in May, and he appears to have been right. He expects the national average to drop another 10 cents by Memorial Day. After that, he anticipates a “roller coaster summer,” with prices dropping in June and July and going up again as we get more into the Atlantic hurricane season. In October and November prices should start dropping again. This is all if nothing unforeseen happens.

As for the volatility of oil and gasoline markets, DeHaan places much of the blame on advances in technology over the past several years or so that make it possible for anyone with enough money to get into the speculation game, which in turn has led to unprecedented fluctuations in market prices.

He thinks traders who speculate in oil should be required to take delivery of the physical commodity as opposed to just buying and selling it on paper. The Federal Trade Commission has looked at the situation but is dragging its feet on action despite congressional prodding, DeHaan said.

“High gas prices in 2008 certain helped the economy to go into recession,” he said. “Why are we taking the risk of allowing speculators to flood the market and drive prices up again? We risk driving the economy again into a recession.”