Americans may hold a key to gas prices
Saturday, 28 June 2008
Richard Wolf and Paul Overberg
A decline in Americans' demand for gasoline is keeping record prices from skyrocketing even further, a USA TODAY analysis of gas and oil prices shows.
The price of crude oil has nearly doubled in the past year, while gas has risen in the U.S. by about one-third, according to statistics kept by the Energy Information Administration. Oil prices are being driven up by rising demand in developing nations. But U.S. drivers have cut back, causing a 1% drop in demand for gas this year compared with the same period in 2007. That has forced refiners and retailers in the U.S. to reduce their profit margins.
"Whenever you look at $4 gas, you feel to some degree that you're being taken advantage of," says Eric Wittenauer, a Wachovia Securities energy futures analyst. "Unfortunately, it could actually be worse."
If crude oil prices come down, refiners and retailers say they will seek to recoup their losses, and the price at the pump is likely to remain high. "When wholesale prices start to fall, retailers will try to expand margins to make up for what they lost on the way up," says Jeff Lenard of the Association for Convenience and Petroleum Retailing.
With plenty of ethanol-infused gasoline on the market and drivers buying less, retailers are making about 12 cents per gallon, barely enough to cover expenses, Lenard says. More than 3,000 gas stations closed last year, the most since 2001.
In the past year, crude oil prices have risen from nearly $69 per barrel to $136. A gallon of regular unleaded gas has gone from an average of $2.98 to $4.07 - a 37% increase.
For most of the past two decades, oil and gas prices have tracked each other, with gas costing two to three times the price of a gallon of crude. Now the ratio is down to 1.28-to-1, with crude oil representing 78% of the price of a gallon of gas. Combined state and federal taxes are between 6% and 12%. Refiners, distributors and retailers divide up the rest.
The price of gas often has risen faster than oil - such as when Hurricane Katrina crippled the Gulf Coast's refining capacity in 2005.
Since last summer, the opposite has been true. U.S. supplies have remained strong, thanks to ethanol mandates and gasoline exports from Europe. U.S. demand fell 1.4% in May compared with a year earlier and is down 1% for the first five months of 2008 - the first drop since 1991, according to the American Petroleum Institute.
Refiners' profits - the difference between crude prices and wholesale gas prices - have shrunk this year, causing some to cut back on production, says Aaron Brady, an oil market expert at Cambridge Energy Research Associates. Valero, the biggest independent refiner, had $261 million in profits for the first quarter of 2008, down from $1.1 billion for the same period in 2007.
A decline in Americans' demand for gasoline is keeping record prices from skyrocketing even further, a USA TODAY analysis of gas and oil prices shows.
The price of crude oil has nearly doubled in the past year, while gas has risen in the U.S. by about one-third, according to statistics kept by the Energy Information Administration. Oil prices are being driven up by rising demand in developing nations. But U.S. drivers have cut back, causing a 1% drop in demand for gas this year compared with the same period in 2007. That has forced refiners and retailers in the U.S. to reduce their profit margins.
"Whenever you look at $4 gas, you feel to some degree that you're being taken advantage of," says Eric Wittenauer, a Wachovia Securities energy futures analyst. "Unfortunately, it could actually be worse."
If crude oil prices come down, refiners and retailers say they will seek to recoup their losses, and the price at the pump is likely to remain high. "When wholesale prices start to fall, retailers will try to expand margins to make up for what they lost on the way up," says Jeff Lenard of the Association for Convenience and Petroleum Retailing.
With plenty of ethanol-infused gasoline on the market and drivers buying less, retailers are making about 12 cents per gallon, barely enough to cover expenses, Lenard says. More than 3,000 gas stations closed last year, the most since 2001.
In the past year, crude oil prices have risen from nearly $69 per barrel to $136. A gallon of regular unleaded gas has gone from an average of $2.98 to $4.07 - a 37% increase.
For most of the past two decades, oil and gas prices have tracked each other, with gas costing two to three times the price of a gallon of crude. Now the ratio is down to 1.28-to-1, with crude oil representing 78% of the price of a gallon of gas. Combined state and federal taxes are between 6% and 12%. Refiners, distributors and retailers divide up the rest.
The price of gas often has risen faster than oil - such as when Hurricane Katrina crippled the Gulf Coast's refining capacity in 2005.
Since last summer, the opposite has been true. U.S. supplies have remained strong, thanks to ethanol mandates and gasoline exports from Europe. U.S. demand fell 1.4% in May compared with a year earlier and is down 1% for the first five months of 2008 - the first drop since 1991, according to the American Petroleum Institute.
Refiners' profits - the difference between crude prices and wholesale gas prices - have shrunk this year, causing some to cut back on production, says Aaron Brady, an oil market expert at Cambridge Energy Research Associates. Valero, the biggest independent refiner, had $261 million in profits for the first quarter of 2008, down from $1.1 billion for the same period in 2007.