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By Dirk Lammers
Associated Press
POSTED: 03:37 p.m. EDT, Oct 19, 2009
Despite persistently low demand, prices for gasoline have spiked over the past week along with crude oil, threatening one of the very few points of relief for the recession-striken U.S. consumer: Cheap gas.
Prices have risen for six straight days and they are now comfortably above $2.50 per gallon for the first time in weeks.
That may be frustrating for consumers with few signs people are driving more now than during what was a dismal summer for the travel industry. People aren't buying much gasoline.
"I wish it could go down under $2," said Cheryl Couture, 50, who was filling up at a Speedway station in Columbus, Ohio, where a gallon had risen to $2.55.
Couture has watched as gas prices have ticked higher. On Monday, they rose again for the sixth straight day to $2.564 per gallon according to auto club AAA, Wright Express and Oil Price Information Service.
Rather than rising consumer demand or a tightening of supply, the falling U.S. dollar is most likely to blame.
All one needs to do is look at the price of crude, which crossed $75 for the first time on Wednesday, then neared $80 on Monday.
Oil is bought and sold in dollars, essentially making it cheaper when the U.S. currency tumbles. The dollar has continued to fall throughout the month.
And the rising price of crude is exacerbating problems that already existed for the refiners that make and sell gasoline.
People are driving less, trucking companies are shipping less, and airlines are cutting back on jet fuel purchases because businesses travel has ebbed.
That lack of demand has forced refiners to cut back production to levels more common in the aftermath of a hurricane.
And because crude prices are rising, profit margins at refiners who must buy crude to make fuel are shrinking. As a result, they are making even less fuel.
U.S. gasoline supplies fell by more than 5 million barrels last week, but are still well above normal levels at this time of year.
San Antonio-based Valero Energy Corp. last month said it would idle two units at its Delaware City, Del., plant, cutting about 150 jobs, and Sunoco Inc. earlier this month said it would indefinitely idle its West Deptford, N.J., facility, which has about 400 full-time workers.
"Refiners don't want to own crude, it's Wall Street traders who want it and I'd like for someone to explain that to me," said energy analyst Stephen Schork. "If we're spending a greater proportion of our incomes on gas right now, that doesn't bode well. It's less money we're spending elsewhere."
Prices remain relatively low so it's not clear how that would affect consumer thinking on fuel costs. Few people noticed that this has been the biggest run up in October gasoline prices since at least 2000.
James Hamilton, an economist at the University of California San Diego, doesn't expect the recent jump to be an economic tipping point like last summer when gasoline prices spiked to a record $4.11 a gallon.
That could change if prices top $3 per gallon, given the economic environment, he said.
Most energy experts see no fundamental reason for rising prices and doubt that gasoline will reach that high, at least this winter.
Benchmark crude for November delivery rose $1.08 to settle at $79.61 on the New York Mercantile Exchange.
Because crude makes up about 64 percent of the cost of each gallon of gas, pump prices are likely to follow.
Gas prices have lagged oil prices so far and will likely rise another 10 cents a gallon over the next week, said Andrew Lipow, president of Lipow Oil Associates.
He too cites the weak dollar and policies by the U.S. Federal Reserve.
"We're hearing word that they'd like to see a stronger dollar, but really no action," Lipow said.
In other Nymex trading, heating oil rose 2.25 cents to settle at $2.0522 a gallon and gasoline for November delivery was essentially flat, closing at $1.9872 a gallon. Natural gas for November delivery rose 5.2 cents to settle at $4.835 per 1,000 cubic feet.
In London, Brent crude for December delivery rose 78 cents to settle at $77.77 on the ICE Futures exchange.
___
Associated Press Writers Alex Kennedy in Singapore, Pablo Gorondi in Budapest, Hungary, and Mark Williams in Columbus, Ohio, contributed to this report.
Despite persistently low demand, prices for gasoline have spiked over the past week along with crude oil, threatening one of the very few points of relief for the recession-striken U.S. consumer: Cheap gas.
Prices have risen for six straight days and they are now comfortably above $2.50 per gallon for the first time in weeks.
That may be frustrating for consumers with few signs people are driving more now than during what was a dismal summer for the travel industry. People aren't buying much gasoline.
"I wish it could go down under $2," said Cheryl Couture, 50, who was filling up at a Speedway station in Columbus, Ohio, where a gallon had risen to $2.55.
Couture has watched as gas prices have ticked higher. On Monday, they rose again for the sixth straight day to $2.564 per gallon according to auto club AAA, Wright Express and Oil Price Information Service.
Rather than rising consumer demand or a tightening of supply, the falling U.S. dollar is most likely to blame.
All one needs to do is look at the price of crude, which crossed $75 for the first time on Wednesday, then neared $80 on Monday.
Oil is bought and sold in dollars, essentially making it cheaper when the U.S. currency tumbles. The dollar has continued to fall throughout the month.
And the rising price of crude is exacerbating problems that already existed for the refiners that make and sell gasoline.
People are driving less, trucking companies are shipping less, and airlines are cutting back on jet fuel purchases because businesses travel has ebbed.
That lack of demand has forced refiners to cut back production to levels more common in the aftermath of a hurricane.
And because crude prices are rising, profit margins at refiners who must buy crude to make fuel are shrinking. As a result, they are making even less fuel.
U.S. gasoline supplies fell by more than 5 million barrels last week, but are still well above normal levels at this time of year.
San Antonio-based Valero Energy Corp. last month said it would idle two units at its Delaware City, Del., plant, cutting about 150 jobs, and Sunoco Inc. earlier this month said it would indefinitely idle its West Deptford, N.J., facility, which has about 400 full-time workers.
"Refiners don't want to own crude, it's Wall Street traders who want it and I'd like for someone to explain that to me," said energy analyst Stephen Schork. "If we're spending a greater proportion of our incomes on gas right now, that doesn't bode well. It's less money we're spending elsewhere."
Prices remain relatively low so it's not clear how that would affect consumer thinking on fuel costs. Few people noticed that this has been the biggest run up in October gasoline prices since at least 2000.
James Hamilton, an economist at the University of California San Diego, doesn't expect the recent jump to be an economic tipping point like last summer when gasoline prices spiked to a record $4.11 a gallon.
That could change if prices top $3 per gallon, given the economic environment, he said.
Most energy experts see no fundamental reason for rising prices and doubt that gasoline will reach that high, at least this winter.
Benchmark crude for November delivery rose $1.08 to settle at $79.61 on the New York Mercantile Exchange.
Because crude makes up about 64 percent of the cost of each gallon of gas, pump prices are likely to follow.
Gas prices have lagged oil prices so far and will likely rise another 10 cents a gallon over the next week, said Andrew Lipow, president of Lipow Oil Associates.
He too cites the weak dollar and policies by the U.S. Federal Reserve.
"We're hearing word that they'd like to see a stronger dollar, but really no action," Lipow said.
In other Nymex trading, heating oil rose 2.25 cents to settle at $2.0522 a gallon and gasoline for November delivery was essentially flat, closing at $1.9872 a gallon. Natural gas for November delivery rose 5.2 cents to settle at $4.835 per 1,000 cubic feet.
In London, Brent crude for December delivery rose 78 cents to settle at $77.77 on the ICE Futures exchange.
___
Associated Press Writers Alex Kennedy in Singapore, Pablo Gorondi in Budapest, Hungary, and Mark Williams in Columbus, Ohio, contributed to this report.
Comments
Click here to post your comments
Rittman, Oh
Posted 04:27 PM, 10/19/2009
So printing unlimited amounts of cash to cover massive unleashed spending actually causes the dollar to weaken, and makes foreign entities require more of it for the same product? Who could have guessed?
Canton, OH
Posted 04:28 PM, 10/19/2009
. . .ouch. . . .
Cuyahoga Falls, OH
Posted 04:49 PM, 10/19/2009
"That lack of demand has forced refiners to cut back production to levels more common in the aftermath of a hurricane."
So essentially, since no major hurricanes hit this year, we'll just pretend there was one anyway.
The gasoline speculation business has gotten so crooked now that pretty soon they'll be accidentally honest.
Orrville, Oh
Posted 05:36 PM, 10/19/2009
Reality demands: Refiners Stockholders, OPEC nations, and Enron Stockholders (money marketers); market more stock dividends (money); quarterly; in the wholesale and retail price of gasoline; to measure and maintain; the strength and growth; of this UNAFFORDABLE economy; and distribute wealth; into Refiners Stockholders, OPEC nations, and Enron Stockholders portfolios!
