Today’s fuel price musings - Not sure how much more gas prices will drop

Add comment August 12th, 2008

Gas prices should remain just under $3.80 a gallon nationally for the next few months, the U.S. Energy Information Administration said in its latest Short-Term Energy Outlook. This is the first time the EIA has downwardly revised its projections since I’ve been following its reports, and it’s saying the days of $4 a gallon gasoline may be over for the foreseeable future.

The drop in prices is directly tied to a drop in oil prices. Crude oil has dropped almost $32 - 22 percent - since its high-water mark of $145 on July 3. Gas prices have dropped almost 32 cents nationally - 7.7 percent - from their high mark of $4.11 a gallon on July 17. They’ve dropped almost 35 cents in the Rockford metro area - 8.2 percent - from their high mark of $4.20 a gallon on July 16.

Ah-ha, you might say. That shows that gas stations are ripping us off by not dropping prices as fast as oil is dropping. Well, again, you have to take the long view … gas prices never rose as fast as oil did. Oil is still 63 percent higher than it was a year ago, while gas is up 37 percent  nationally and 36 percent locally. What I suspect is happening is that retailers are trying to raise their margins a bit to make up for the bath they were taking in recent months.

Crude oil made up an unheard of 75 percent of the price of gas in June. The percent of what you pay at the pump that goes to distribution and marketing was below 5 percent in May - one of the lowest on record - and has generally been in the single digits. Retailers only get a bit of that, and their margins until recently have been very small … down into the single digits in some places. Basically, the retailers are letting their margins creep back up to old, pre-oil-runup levels, and that’s why prices haven’t fallen as fast. So unless you think retailers have always ripped you off, even when prices were $2 a gallon … can you fairly complain now?

Remember to check out our Gas Tracker feature, and add prices you see. The more trackers we have, the better information we’ll have.

Here’s the situation in the metro area, state and nation (prices courtesy of AAAs fuelgaugereport.com):

Gasoline: Rockford dropped a cent to $3.86 a gallon, down almost 35 cents from the record high July 16. We’re third in the state in gas prices. The Illinois average dropped more than a cent to $3.93, down 32 cents from the record high July 17. The national average dropped a cent to just under $3.80, down 32 cents from the record high July 17. Illinois has the 12th-highest gas prices in the nation (including the District of Columbia).

Diesel: Rockford dropped three cents to $4.37 a gallon, down 44 cents in the past month. We have the eighth-highest diesel prices in the state. The state average dropped more than a cent to $4.55, down 29 cents in the past month. The national average dropped two cents to $4.52, down 30 cents in the past month. Illinois has the 22nd-highest prices in the country (including the District of Columbia).