With the summer driving season still months away, pump prices have already begun rising as a combination of factors threaten to squeeze supplies. And with pump prices expected to continue rising as summer approaches, drivers’ pain may soon become refiners’ gain, according to analysts who follow the industry.
The national average cost of a gallon of regular gasoline hit $2.42 Friday, up nearly 16 cents a gallon in the past month, according to the latest figures from AAA. That’s up nearly 38 cents from this time last year. Diesel prices averaged nearly $2.64 a gallon nationwide, up 7 cents in the last months and nearly 40 cents from a year ago.
Pump prices continue to vary widely from one part of ht country to another. The lowest average price regular unleaded was in Newark, N.J., at $2.15 a gallon, according to the most recent Lundberg Survey, an energy consulting firm. But prices at some stations have once again topped $3.00 a gallon.
The jump in prices comes as demand for gas has been creeping upward.
“Gasoline consumption over the past 4 weeks has been 2.4 percent above prior-year levels, on average, suggesting momentum continues to build ahead of the summer driving seasons,” said Jacques Rousseau, an analyst at Friedman Billings and Ramsey.
Meanwhile, bottlenecks may also be looming for U.S. gasoline supplies, which could push prices even higher from current levels.
Though most refiners damaged by hurricane Katrina and Rita have come back on line, much of the industry was forced to postpone routine maintenance to keep the markets supplied during refinery outages last fall and early winter. Now, as those refiners begin to go offline to take care of maintenance and repairs, lost production could tighten supplies.
Gasoline stocks could also get tighter as dealers in many parts of the country switch to so-called reformulated blends for summer, which are required to make fuel burn cleaner and prevent smog. Until recently, that meant using a fuel additive called MTBE. But after the chemical was found seeping into groundwater, and chemical makers failed to win liability protection in last year’s Energy Policy Act, most refiners have stopped using MTBE. Refiners are substituting the biofuel ethanol, which is not as widely available as MTBE.
Refiners face a June 1 deadline to meet new federal regulations cutting the sulfur content of diesel fuel. Though the industry has spent the last several years and $8 billion to overhaul refineries to meet the new standards, supplies could be interrupted as pipelines, terminals, wholesalers and retailers make the switchover. Spot shortages could add further pressure to pump prices.
All of which is making for a potential windfall for oil refiners, according to analysts. Gasoline futures prices have jumped over the past several weeks amid fears of supply bottlenecks cropping up this summer. But since the cost of refining has not risen as rapidly, refiners' profit margins have jumped.
"The outlook for refiners is very strong," said Bill Ferer, president of investment firm W.H. Reaves & Co. in New Jersey. "Any time you have new fuel regulations you tend to have supply dislocation and price spikes. So the refiners stand to make a lot of money from this."
Rousseau estimates that the average profit margin for gasoline refiners jumped 49 percent in the past week to about $20 a barrel as of Mar. 14.
Valero Energy Corp., the largest U.S. refiner, has forecast record earnings in 2006. The company has also said the new regulations will likely tighten supplies and contribute to higher fuel prices.