Today’s fuel price musings - Why is gas going up while oil is going down?

5 comments September 8th, 2008

It never fails. Whenever gas prices go up unexpectedly - at least unexpectedly for consumers - I get calls and/or emails accusing retailers of “gouging.” Those calls and emails never come in when gas prices drop significantly (or when the Rockford metro area is paying less than most of the rest of the state), with people meekly saying, “Hey, we’re being undercharged here!”

So even though oil is down around $106 a barrel today, gas is up to $3.78 a gallon in our metro area (and about $3.83 a gallon in the city). And people complain.

Well, there are (at least) two factors at play here. First of all, consumers have the misconception that the world oil price is a direct indicator of gas prices (oil goes up, gas goes up exactly the same; oil goes down, gas goes down the same). But oil has to get shipped, refined into gasoline, shipped some more, sold to retailers, shipped some more and put into tanks. And at every step of the way, there are price points that are affected by supply/demand, pipeline issues, refinery issues, weather, taxes, etc. There are regional differences in wholesale petroleum prices, which force retailers to have regional differences in prices. There are issues that can upend one region and not others (a refinery or pipeline shutdown, for example).

What apparently is happening now is that the threat of Hurricane Ike has raised prices at several levels (fear of supply hits = price hikes to curb demand until supply gets back in line … it’s the market working to avoid gas lines, really.). Meanwhile, a ConocoPhillips refinery in Illinois was out last week due to a power outage and a small fire. Those events, and  others I’m sure I’ve missed, have caused an upswing in retail prices up here and in much of the state.

Here’s the other thing - perspective. Even at $106 a barrel, oil is still around 49 cents above where it was a year ago. Gas is up 20 percent in Rockford. I’ve said this repeatedly, but I’ll say it again … gas prices never rose as far or as fast as oil did, so it’s not fair to criticize retailers for keeping prices up a bit while oil falls. They were taking a hit for a while and now they’re trying to get back to the margins they were seeing back before the run up…

Here’s what the price situation for the metro area, state and nation were as of this morning (prices courtesy of AAAs fuelgaugereport.com):

Gasoline: Rockford increased two cents to $3.78 a gallon, up about eight cents over the weekend. We have the second-highest gas prices in the state. The Illinois average rose a fraction of a cent to $3.84. The national average dropped almost a cent to $3.66. Illinois has the seventh-highest gas prices in the nation.

Diesel: Rockford dropped almost four cents to $4.12 a gallon. We have the fifth- or sixth-highest diesel prices in the state (no report from Quincy today). The state average dropped more than two cents to $4.31. The national average dropped almost two cents to $4.22. Illinois the 15th-highest prices in the country (including the District of Columbia).