Today’s fuel price musings - Ring in the new year with price bumps

January 2nd, 2009 at 01:29pm Thomas V. Bona

Probably due to the conflict in Gaza, oil and gas prices have spiked this week. Oil is up to $46 a barrel last time I checked, and gas prices around Illinois are flirting with the $2 a gallon mark. According to gasbuddy.com, some stations in Chicago have moved up to $1.99 a gallon, and I expect others to follow. Prices in Rockford jumped to $1.89 a gallon. We’ll see how this plays out around the state.

This is as good a time as any to talk about the difference in prices between Chicago and Rockford, since I got another email this week from a reader on the subject. Sure, there are going to be occasions where gas prices in Rockford are around Chicago’s prices - those are blips in the radar (see below how, at the end of yesterday, Rockford was actually lower than much of the state … neither blip tends to last).

A key driver of the difference in prices is taxes. The Cook County area of Chicago has 11 cents per gallon extra in gas taxes. It also has a sales tax that’s 2 percentage points higher than Rockford’s. The latter actually isn’t a big deal right now - when gas is under $2 a gallon, that tax difference isn’t quite 4 cents. When gas was around $4 a gallon, the difference is much more. Interestingly enough, the sales tax difference between Rockford and Chicago was only 1 percentage point before July.

Another key component of the difference is the different blends used in Chicago versus other parts of the state. But that’s only in the summer - in the winter, it’s not a big difference in gasoline between Chicago and other parts of the state. So you’ll see more of a flattening in the winter.

Finally, I talked to Bill Fleischli, executive vice president for the Illinois Petroleum Marketers Association/Illinois Association of Convenience Stores, and he said Chicago doesn’t see quite as much of a demand drop in fuel than other parts of the state - think of all the business and commerce that has to go through there. Higher demand in this case is actually keeping prices down a bit because retailers can move more volume than other parts of the state - and are forced, by a very, very competitve market to keep prices down more than they would otherwise.

That may seem counterintuitive - after all, prices are typically higher when demand goes up nationally over the summer. But that’s because one of the many reasons high demand causes high prices in the summer is because it’s a check on consumption to keep supply flowing. If prices were too low, demand would increase further and supplies would get shorter. But in this case, demand is still pretty low and retailers want to entice motorists to shop at their stores. Expect prices in Chicago to rise more in the spring and summer.

Complicated? You betcha. But there are generally good reasons why prices are what they are. Also remember to look at price differences over the course of time, not just in isolated moments. Things have a way of balancing out - with Rockford generally in the top third of the state, but not the worst off.

Here are the now-outdated prices as of the end of yesterday (courtesy of AAA’s fuelgaugereport.com):

Gasoline: Rockford dropped half a cent to $1.68 a gallon. We had the seventh-highest gas prices in the state. However, we’re up to the 74th highest of the nation’s 250 metro areas. The Illinois average rose more than two cents to $1.71. The national average rose a cent to $1.63. Illinois has the 11th-highest gas prices in the nation, including the District of Columbia. Only Alaska and Hawaii remain above $2 a gallon.

Diesel: Rockford dropped four cents to $2.43 a gallon. We have the sixth-highest diesel prices in the state. The state average dropped almost three cents to $2.53. The national average dropped almost a cent to $2.41. Illinois has the 13th-highest diesel prices in the country. Only Alaska and Hawaii remain above $3 a gallon.

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