Gas prices are displayed on Friday, April 19, 2013 in Montpelier, Vt.
With more Americans hitting the road as the summer driving season kicks off, they’re paying a lot more attention to the price of gasoline at the pump.
After a sharp jump in May, the average U.S. price of a gallon of regular gasoline has dropped two cents over the past three weeks to $3.64, according to the Lundberg Survey of fuel prices released Sunday.
But after prices spiked much higher than that average in several parts of the country, a lot of drivers are wondering why they're suddenly shelling out more to fill up.
As usual, there are number of forces at work – from refinery outages to spot shortages. And any time prices spike, many drivers suspect that someone may be rigging the market. Are they right?
Gasoline prices are all over the place. Why are prices so different from one place to another?
A lot has to do with the available refining capacity in a particular region, along with the transportation costs involved in getting fuel to the drivers who need it.
Then add state gasoline taxes which range from Alaska, where you pay only 8 cents a gallon, to New York, which tacks on 50.6 cents to the price of every gallon.
Then add the higher cost of special summer blends required by state-by-state regulations designed to reduce air pollution in warmer months. That can tighten supplies and produce spot shortages, which drive up prices. Those shortages can also crop up this time of year when refiners have to shut down to switch over from making winter fuels.
This summer is shaping up as an extreme example of a wide range. As of last week, you could fill up in Spartanburg, S.C., for as little as $2.80 a gallon, according to GasBuddy.com, a web site that tracks gas prices. Drivers in Chicago, on the other hand, were shelling out as much as $4.64 a gallon.
That’s crazy: why so expensive in Chicago?
Price have surged in the Midwest the last month because a series of refineries shut down unexpectedly.
Scheduled maintenance work at BP's Whiting refinery in northwestern Indiana and at Exxon Mobil's refinery in Joliet, Ill., were already taking longer than expected when a Marathon oil refinery in Detroit was hit by a late April fire and other refineries had some glitches, according to Purdue University economist Wally Tyner.
"It's a just a perfect storm of refinery outages," he said. "All these other things had been there, but then the Detroit fire was the straw that broke the camel's back. We've just had a series of unlucky draws."
If cars are getting more fuel efficient, shouldn’t that lower demand and push prices lower?
Higher-mileage cars have indeed reduced the amount of gasoline consumed in the U.S., which peaked in 2007 and is expected to continue falling, even as the economy improves. The economic recovery is further cutting demand as consumers return to auto showrooms and trade in their gas guzzling clunkers for high-efficiency models.
If all the gasoline produced in the U.S. stayed here, the “surplus” should push prices lower. But it doesn’t. U.S. refiners are increasingly exporting gasoline and diesel fuel to Central and South America, where demand from those developing economies continues to rise.
Last year, U.S. refiners exported more than 15 percent of overall production, more than triple the amount shipped overseas in 2007.
I don’t buy it. I think gas prices are up because somebody is manipulating prices.
So do European regulators. Last month, the European Commission announced it was investigating whether BP, Shell and others got together to fudge prices reported to a widely watched market index. No charges have been brought, and the oil companies have said they are cooperating with the investigation.
U.S. Senator Ron Wyden (D-Ore.) last month asked the Justice Department to join that investigation and look into whether price fixing had boosted pump prices for U.S. consumers.
"Efforts to manipulate European oil indices, if proven, may have already impacted U.S. consumers and businesses, because of the interrelationships among world oil markets and hedging practices," Wyden, who chairs the Senate's energy committee, wrote in a letter to U.S. Attorney General Eric Holder.
First published June 10 2013, 7:45 AM