Archive for September, 2008
September 16th, 2008
According to the Oil Price Information Service, wholesale gasoline prices are back on the rise in Chicago - up 13 cents to $3.39 a gallon so far. It’s the only region in the nation showing increases today, as we rely on Gulf gasoline to flow up here. Look for prices to remain over $4 a gallon retail until wholesale drops below $3.20 a gallon and stays there. It could be a couple weeks, but *eventually* we’ll have big movement downward. Crude oil is down to $92 a barrel today. The last time oil was so cheap, gas was down just below $3.20 a gallon in Illinois. That’s about where local experts are predicting prices could be in a month, once supplies are back flowing here.
The last time gas averaged less than $3 a gallon in Illinois? Last Halloween, where oil was somewhere between $81 and $86 a barrel. We’ll see how far things slide.
September 15th, 2008
Gas prices spiked up here this weekend, as they did all over the Midwest (and down to the Gulf Coast). Wholesale prices - the price the retailers pay to get the stuff - ran over $4 a gallon up here, meaning under a normal markup we could have seen prices close to $5 a gallon. We didn’t, as in some cases the suppliers ate the cost while in others the retailer did. It seems like all sides know this will be a short-term supply problem, and decided not to pass all the increase on. I would say it’s good PR for the oil companies and retailers, but they’re getting blasted just for increasing prices like they did.
With oil prices falling and gasoline futures dropping as well, I predict prices will be back down to $3.40 or less in a month. Some local retailers think it’ll go further, to about $3.20 or less. Knock on wood, and hope another hurricane doesn’t hit.
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 more than 15 cents to $4.17 a gallon. We have the second-highest gas prices in the state. The Illinois average rose eight cents to $4.16. The national average rose five cents to $3.84. Illinois has the fifth-highest gas prices in the nation.
Diesel: The diesel supply chain hasn’t been hit hard, apparently, as prices there are stable. Rockford dropped almost two cents to $4.09 a gallon. We have the seventh- or eigth-highest diesel prices in the state (No report from Quincy). The state average dropped a fraction of a cent to $4.29. The national average dropped slightly to $4.19. Illinois the 11th-highest prices in the country (including the District of Columbia).
September 15th, 2008
What’s the definition of gas-price gouging?
Apparently, it’s having to pay more for gas than you want to.
At least, that’s the impression I get from readers, whose complaints rise in proportion to the price at the pump. There’s no question it hurts our wallets when prices jump unexpectedly, or when they go up more often than down. But just because you don’t like the price doesn’t mean something illegal is going on.
Last week, we had a rare disconnect between oil prices and gas prices. We had — briefly, at least — oil below $100 a barrel and gas above $4 a gallon.
Gouging, right?
No.
When the largest Atlantic hurricane on record bears down on a big section of our petroleum-refining infrastructure — forcing most of those facilities to close in advance — it makes sense for gas prices to spike.
Scarcity drives prices. Oil may be cheaper, but evacuated refineries can’t keep turning it into gasoline, which is the cause of the problem.
Which is why the wholesale price of gasoline rose sharply last week, with retail gas prices following suit a day later. Because most people rarely hear about wholesale prices — they’re not as widely reported as oil and retail gas prices — this can be confusing. But when there’s a big price shift, there’s a reason. And this time, it was Ike.
I think many people have a misconception on how prices are set. They envision oil barons in a room (or, in the 21st century, webconferencing), smoking fat cigars and arbitrarily setting prices.
But oil is traded on the open market, with people who have no direct connection to Big Oil influencing whether it goes up or down. Same with wholesale gasoline prices — sure, oil companies buy and sell the stuff, but so do independent retailers. And in Rockford, our gas stations are generally owned by independent retailers, not the oil companies.
And certainly, oil companies are big beneficiaries of high prices for their products. But correlation does not mean causation. A friend of mine compared it with an eBay auction: if you put a $20 bicycle up for sale and people are willing to pay you $100, do you say no?
If oil companies and gas station owners were looking to gouge at every turn, why were gas prices at historic, inflation-adjusted lows from the mid-’80s to the mid-’90s? And why, except for two spikes in the 1970s and the spike of the 2000s, have gas prices generally risen more slowly than inflation in the U.S.?
Things are different now. And it’s not because Big Oil, Big Gas, or Road Ranger, Kelley Williamson and other local retailers have suddenly decided to overcharge. The open market has caused the price of energy to rise and be more volatile than ever. The fundamentals have changed.
There’s an answer for everything. It’s just not as simple as we want.
Contact staff writer Thomas V. Bona at 815-987-1343 or tbona@rrstar.com
September 10th, 2008
More hilarity from The Onion
“It no longer makes sense financially to let one passenger dictate when and where we travel,” acting Secretary of the Air Force Michael Donley said in a press conference at the Pentagon, the Air Force’s corporate headquarters in Arlington, VA. “We’ve got a big plane here, and there’s no reason we shouldn’t be filling it.”
September 10th, 2008
I appreciate lively conversation, and am glad to incite it on this blog. That means you’re reading, thinking about what you’re reading and taking time to respond. That’s great.
At the same time, I’m amused at the “kill the messenger” attitude. A couple of readers have basically said I’m in cahoots with the gas stations/oil companies and have a stake in ad revenues or “hidden agendas”.
Well, my agenda is not so hidden. It’s to explain what is going on, and why, as best I can. Let me explain a few things:
- Â Wholesale gasoline prices did indeed spike on Monday - 36 cents a gallon in the Gulf Coast region, and about 20 cents in Chicago (don’t have a link, but it comes from the Oil Price Information Service, in emails I’ve been getting). Gas prices spiked in Chicagoland (not just Rockford) a day later. That’s a fact
- Wholesale prices went down yesterday, but are back up today, about 11 cents to $3.29 a gallon. From an OPIS email I just got -Â Â “The supply situation in Chicago is helping keep things elevated. Midsummer saw a few refineries have some problems that caused a disruption to gasoline production. A power outage last week that shut down ConocoPhillips’ Wood River,
Ill., plant, which at presstime was still not back to full rates, made gasoline supplies even thinner.”
- Even at $104 a barrel, oil is 43 percent above a year ago (last post, I mistakenly put that in cents, not percent. Yikes). Meanwhile, gasoline in the Rockford metro area is 21 percent above a year ago. From the start of the oil runup in 2007 to the peak in the middle of this summer, oil prices almost tripled while gas prices didn’t quite double. So that pretty much torpedos the argument that gas prices always rise as fast as oil…
- Oil companies, by and large, don’t own gas stations. ExxonMobil got out of that business, as did ConocoPhillips, precisely because retail isn’t that profitable. They make their money on gas and oil production, not distribution. Retailers are reacting to the spike in prices, not setting it, and it’s not just a local phenomenon.
Any questions?
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 more than three cents to $3.81 a gallon. We have the second-highest gas prices in the state. The Illinois average rose four cents to $3.87. The national average rose almost two cents to $3.67. Illinois has the fourth-highest gas prices in the nation.
Diesel: Rockford increased more than two cents to $4.17 a gallon. We have the fifth-highest diesel prices in the state. The state average increased half a cent to $4.31. The national average dropped slightly to $4.21. Illinois the 15th-highest prices in the country (including the District of Columbia).
September 9th, 2008
The U.S. Department of Transportation announced its 2008 Small Community Air Service Development grant awards yesterday. Three Illinois airports - Springfield, Bloomington and Peoria - applied for grants. The first two got theirs.
Springfield got the largest grant in the country - $750,000 of the $6.85 million in grants awarded, according to the DOT’s filing (I haven’t found an online announcement to link to, sorry).The grant is for a revenue guarantee for Northwest to restart service to Memphis, which last flew in 2002.
Bloomington got $225,000, less than half the $500,000 the airport asked for, toward attracting American Airlines service to Dallas/Fort Worth, Continental Airlines Service to Houston or something similar. Bloomington has to accept the lesser amount before officially getting the grant. The community said it would match the grant with $725,000 in local funds, but that may have been predicated on getting the full grant. The airport wants to spend $1 million on a revenue guarantee to whatever airline it can land.
Peoria applied, unsuccessfully, for $800,000 to setting up regionaljet flights to a new destination hub. No airlines or destinations were identied, as it appears the airport was looking to study the idea and find a willing partner.
Rockford, which was unsuccessful in getting a grant last year, did not apply this year.
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).
September 5th, 2008
Oil prices fell another dollar today, but something must have happened on the wholesale gasoline front today, because gas prices around Rockford increased to around $3.85 a gallon at the middle of the day. I’ll try to find out more next week…
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 dropped almost two cents to $3.70 a gallon overnight. We have the seventh-highest gas prices in the state. The Illinois average dropped almost a cent to $3.84. The national average dropped a fraction of a cent to $3.67. Illinois has the eighth-highest gas prices in the nation.
Diesel: Rockford dropped almost a cent to $4.16 a gallon. We have the fifth-highest diesel prices in the state. The state average dropped almost a cent to $4.33. The national average dropped a cent to $4.26. Illinois is tied with the 15th-highest prices in the country (including the District of Columbia).
September 4th, 2008
Not much to say today. Here’s the price situation as of this morning (prices courtesy of AAAs fuelgaugereport.com):
Gasoline: Rockford dropped more than a cent to $3.72 a gallon. We have the seventh-highest gas prices in the state. The Illinois average dropped almost a cent to $3.85. The national average dropped a fraction of a cent to remain at $3.68. Illinois has the eighth-highest gas prices in the nation.
Diesel: Rockford increased four cents to $4.17 a gallon. That boosts us to the fifth-highest diesel prices in the state. The state average increased almost two cents to $4.34. The national average remained $4.27. Illinois has the 16th-highest prices in the country (including the District of Columbia).
September 3rd, 2008
So will gas prices drop now that Labor Day has passed and the summer driving season is over? While that may seem to intuitively be the pattern, in recent years it’s been a crapshoot (things like 9/11, hurricanes and general economic trends have thrown those numbers off).
Going back to 1993, using data from AAA and the U.S. Energy Information Administration shows this. In 9 of those years (1994, 1995, 1997, 1998, 2000, 2001, 2003, 2005 and 2006) prices generally went down post-Labor Day. The biggest drops were in the calamity years of 2001 and 2005.
In 2001, 9/11 send the world economy into a spiral. Gas averaged $1.55 a gallon nationally at the beginning of September, reaching $1.08 by February (a 30.3 percent drop). Prices didn’t reach their pre-9/11 levels until February. Of 2003.
In 2005, Hurricane Katrina boosted gas to $3.04 a gallon around Labor Day, and Hurricane Rita kept prices near there. They didn’t start their descent until October, but they fell hard, hitting $2.12 by early December. That was a 30.2 percent drop. But prices were back around $3 by the following August.
This also shows the rule that “what goes down must come up”. In the years prices dropped after Labor Day, they returned to that level by the following March or April six times. Once, they returned to a high level in the spring but didn’t reach the Labor Day mark until August. And twice, it took two years to get back,
The years gas went up after Labor Day were 1996, 1999, 2002, 2004 and 2007.
In 1996, prices came back down by April. In 1999, prices went up and didn’t come back down until fall 2001. In 2002, they went up a bit then came back down by the end of the year, but then started a long-term upward trend. In 2004, they came back to Labor Day levels by December, even dropping a few cents. But soon, the days of $2.00 gas were here to stay. And you know what happened in 2007.
What does that mean? That’s a long, in-depth way of saying I have NO CLUE what’s happening next. For now, prices keep inching down…
(Our Gas Tracker feature is down right now. We’ll let you know when it’s back up.)
Here’s the price situation as of this morning (prices courtesy of AAAs fuelgaugereport.com):
Gasoline: Rockford dropped almost a cent to $3.74 a gallon. We’re down to seventh in the state in gas prices. The Illinois average dropped more than a cent to $3.86. The national average dropped a fraction of a cent to remain at $3.64. Illinois has the eighth-highest gas prices in the nation.
Diesel: Rockford increased a fraction of a cent to remain at $4.13 a gallon, still down 47 cents in the past month. Despite the increase, we dropped to the eighth-highest diesel prices in the state. The state average remained at $4.32, down 34 cents in the past month. The national average increased almost a cent to $4.27, still down 39 cents in the past month. Illinois has the 17th-highest prices in the country (including the District of Columbia).
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