Today’s fuel price musings - Come on oil, fall faster!
July 16th, 2008 at 05:12pm Thomas V. Bona
I know it’s confusing. Oil prices have dropped a bunch this week, but gas prices are going up? Remember, it’s not a direct line between oil prices and gas prices, but moreover, remember that gas prices weren’t high enough to really offset the past jumps in oil prices. Retailers were losing their shirt, and now they’re playing “catch up.”
Oil prices settled at $134.60 a barrel today, which is almost 4 percent higher than a month ago. and 83 percent higher than a year ago. Gas prices in the Rockford metro area rose today to hit 3 percent higher than a month ago and “only” 28 percent ahead of a year ago.Consumers aren’t the only ones getting hurt here.
Numbers, as always, courtesy of AAA’s fuelgaugereport.com:
Gasoline: Rockford rose more than two cents to a record $4.20 a gallon. We’re fourth in the state in gas prices. The state average increased more than a cent to a record $4.25 a gallon. The national average increased half a cent to a record $4.11. Illinois has the eighth-highest gas prices in the nation.
Diesel: Rockford dropped almost a cent this morning to $4.83, about three cents below the record set in May. We have the fifth-highest diesel prices in the state. The state average increased almost a cent to a record $4.86 a gallon. The national average increased almost a cent to a record $4.84 a gallon. Illinois has the 20-highest prices in the country (including the District of Columbia).
Entry Filed under: Fuel price musings
6 Comments Add your own
1. Bob Trojan | July 18th, 2008 at 11:40 am
So tell us, why does the price at the pump rise daily when the barrel prices rise, yet are soooo slow to fall when barrel prices fall, like they have these past few days??
I heard yesterday that the pump prices should have fallen by $.40/gallon already, yet I still see the $4.19/gallon in local gas stations!
2. Thomas V. Bona | July 18th, 2008 at 11:57 am
Bob,
Thanks for the question. As I said above, pump prices often don’t rise as quickly as oil prices do … so when there’s a lag between oil dropping and gas dropping, a lot of it is because gas retailers were “catching up.” They were taking a bigger hit when prices first spiked, and are making up for it.
Note that gas prices have fallen four cents in two days in the Rockford metro area. That puts gas prices at 28 percent above where they were a year ago, and about 2 percent above a month ago. Meanwhile, oil is still 74 percent ahead of where it was a year ago, and about 1 percent a month ago.
Also, note that oil prices are sneaking back up today while gas prices recede.
It’s not a 1-1 ratio, anyway, because there are other factors in between the purchase of oil and the sale of gasoline - refining, transportation and other issues. But oil is the big thing, and with it still way elevated, I find it hard to find fault with gas station pricing. They’re still operating at lower margins than they used to.
Does that answer your questions, Bob?
3. Thomas V. Bona | July 18th, 2008 at 12:15 pm
Also, Bob, Road Ranger is down to $4.09 in the area today, so prices have dropped further.
4. Bob Trojan | July 18th, 2008 at 3:12 pm
Thomas;
My observations recently have shown that there is more of a one-one upward price increase almost the next day…but way less when barrel prices are falling.
I agree that there are other parts of the process…but my observations indicate that there aren’t any!
Maybe other readers notice this as well??
Besides, I think Road Ranger sets the pricing. Gee, remember when they complained about the 1% sales tax? Bet they’re not complaining now!
5. Bob Trojan | July 18th, 2008 at 3:17 pm
Well, now it’s the 4th day in a row and barrel prices have dropped 12.5% from the high. So if we drop pump prices by 12.5% from $4.19, let’s see…that should be a drop of $.52 or a target of $3.67
Wonder how long the pump prices will take to get there?
6. Thomas V. Bona | July 18th, 2008 at 3:26 pm
Bob,
How can you say that prices only go up and not down, when gas prices are less than 28 percent above a year ago and oil is 74 percent? Yes, gas jumps up faster than it goes down, but it rarely goes up *as fast* as oil. That’s why we have such a disparity. They increase gas prices as much as they feel they can, but it’s never been enough to regain the margins they once had.
Rather than asking, “When will gas prices drop 12.5 percent?” why aren’t you asking, “Why aren’t gas prices 74 percent above a year ago?” It’s not fair to criticize retailers for not dropping fast when they didn’t increase as fast. They need to make some profit to stay in business.
Note this - In May and June, oil costs made up about *three quarters* of the price of a gallon of gas, the highest it’s ever been. Less than five years ago, oil only made up *half* the cost of a gallon of gas.
I’m not sure I agree RR sets the pricing or not … they let others top $4 first before following suit. But in general, competition does affect things, and if a chain that owns a number of stations moves, others will take that into account. Same with Wal-Mart and McDonald’s and others… why should gas retail not follow the same dynamics other industries do?
And why would they be happy about the 1 % sales tax? They don’t get that, but they get the flak from people who have to pay that…
Thanks as always for reading and writing, Bob.
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