Gas Prices: Could We Really Pay 75 cents A Gallon More?
We might all be paying 75 cents more a gallon for gas if refiners don't play nice. That's what Mark Cooper, author of a Consumer Federation Report to be released later today, says.
It's the first time in 8 years that there is downward pressure on gas prices: demand is down, inventory is up, and ethanol is in the mix, he points out. But we haven't seen that translate into lower gasoline prices.
In fact, the national average for regular unleaded gasoline is $3.26/gallon, just 2 pennies shy of the all-time record hit on March 16. The market is slack, so this summer will be an interesting test to learn whether the refiners will cut back on refining capacity (propping up prices) or continue with their current utilization rate of about 50 percent (allowing prices to drop.), Cooper says.
Cooper complains if refiners cut production runs to increase their margins, gasoline prices might just go up as much as 75 cents a gallon. If that happens, "policy makers ought to throw a fit."
I'll throw a fit too. I drive an SUV. Refining utilization did drop sharply last week, down 1.6 percent to below 83 percent capacity according to the weekly EIA inventory report released today. The refinery utilization rate is now the lowest it's been in 3 years.
Also the outlook for refining margins has improved dramatically in the past week. A week ago refiners were actually LOSING money by making gasoline (last Tuesday the April gasoline crack turned negative, yesterday the May crack was up $10-$11, it's slightly lower today), but now refiners are making money again in refining gasoline. CNBC contributor John Kilduff, energy analyst at MF Global, is expecting run rates to tick back up as a result.
Outages, extended maintenance, and glitches when refineries start up again could certainly hinder output in the coming month--and if that occurs when refiners are supposed to be making summer gasoline that will lift prices.
By how much? That is the multi-billion dollar question. Demand will likely increase in Apr/May compared to Feb/March, but maybe not as much as last year. Kilduff told CNBC energy producer Judy Gee that gas prices will be "hard pressed to top $3.50 and $4.00 gasoline ain't gonna happen," even when refiners switch over to the more expensive summer grade...barring any severe supply disruptions, of course.
Energy analyst Tom Kloza of OPIS (which provides data for AAA) agrees. He thinks we'll still see a seasonal shift higher for gasoline prices, perhaps 20-25 dollars over crude on the wholesale level, which translates to $3.50 to $3.75 at the pump.
In any case, looks like I should start shopping for a Honda Civic hybrid.
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