E.V. gas prices dropping despite oil market surge - East Valley Tribune: Business

E.V. gas prices dropping despite oil market surge

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Posted: Friday, August 13, 2004 6:13 am | Updated: 4:43 pm, Thu Oct 6, 2011.

Oil prices hit another record Thursday, but gasoline prices continue to come down in the East Valley thanks to flat demand and higher inventories that sent wholesale margins down.

Despite dramatically higher oil prices for several weeks, the price at the pump in Arizona dropped for the 11th consecutive week. The state average for regular unleaded dropped more than than a penny a gallon this week to $1.90 a gallon, nearly 4 cents higher than the national average.

In the East Valley, prices fell nearly 3 cents a gallon to an average of $1.86 per gallon. Scottsdale prices fell 3 cents a gallon to $1.91 per gallon.

Crude oil prices jumped well above $45 a barrel Thursday, continuing to rally on uncertainties in oil-producing nations at a time when demand is strong and the world’s excess output capacity is thin.

The price of light, sweet crude for September delivery rose 70 cents to $45.50 on the New York Mercantile Exchange — the highest settlement price on record. However, when adjusted for inflation, oil still costs roughly $12 less than it did leading up to the first Persian Gulf War.

Traders said Thursday they were focused on potential supply troubles in Iraq, where the oil infrastructure has been threatened by insurgents, and in Russia, where oil giant Yukos faces a multibillion dollar back-tax bill.

Other factors included the temporary shutdown of some oil facilities in the Gulf of Mexico because of tropical storms and, most of all, the belief that there is not enough spare production capacity in the world to offset any significant loss of supply.

The price of oil, which makes up 55 percent of the cost of gallon of gas, is now twice as expensive as it was at the start of 2002, AAA said.

The biggest reason gas prices haven’t risen is the margin refiners make on a gallon of gas has been chopped in half, experts said.

"It’s demand induced," said John Felmy, American Petroleum Institute chief economist. "For the very first time, we’ve actually seen gasoline demand down. That puts a squeeze on sellers. It could be as Chairman (Alan) Greenspan said we’re in a bit of a soft patch in the economy.

"Also, eventually, you see prices do have an impact. People, after a while, really do start to adjust their behavior, as a result of the higher prices."

AAA Arizona spokesman David Cowley said his analysis shows refiner margins are normally around 30 cents a gallon. During the first part of the year, it was below that.

In the spring, the margin scooted up to 70 cents per gallon. Since then, it has fallen to 38 cents.

He and others say the dropping gas prices may not last long.

"At some point, they could decide they need the profits and they’re going to move it back up," he said. "I suspect they’ve probably figured out they’ve probably pushed us about as far as they can, and if you don’t just want a revolt, you’re going to absorb it for a little while."

Cowley said AAA predicts the East Valley will see prices remain steady for the rest of August.

"If there is any kind of dip around Labor Day, as they’re usually is, it’ll probably not amount to much, and then I think it will go back up because somebody at some point as to pay for this expensive crude oil," he said. "I think we’re going to have kind of an expensive fall."

The Energy Information Association this week released its latest Short-Term Energy Outlook, which forecasts the average price of crude could remain at or above $38 per barrel for the foreseeable future.

The agency estimates global demand will continue to grow at 2 million barrels per day or more in 2004 and 2005, and that supplies will struggle to keep up.

"We see a global oil market in which production capacity, both upstream and downstream, is nearing its limits, while demand growth continues to be strong, which should keep inventories relatively low for some time to come," the association said.

"The good news is that with crude oil prices at such high levels, producers will be encouraged to add production capacity where possible. Additionally, it appears that crude oil imports from Saudi Arabia have surged recently, and should help to build inventories in the coming weeks."

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