With pump prices up 20 cents in the last two weeks and daylight saving time three weeks early, it feels like spring is coming a little early this year. But if the typically seasonal pattern of pump prices holds, consumers in most parts of the country can expect some relief by Memorial Day.
Though the summer driving season — and the resulting pick up in demand — is months away, gas prices have moved higher as refiners take their plants offline for annual maintenance and upgrades. As production levels dip, worries about short-term supplies send futures prices higher, according to Tom Kloza, who tracks gasoline prices at the Oil Price Information Service.
“This is trader-led,” he said. “There were a lot of refinery problems, and that’s been the catalyst this year for an earlier-that-normal late first quarter surge.”
That first quarter surge typically comes as gasoline production dips as refiners switch to making the blends that burn more cleanly in summer months. Over the past 22 years, gasoline futures have risen 57 percent over their winter lows, according to Kloza. Based on that historical average, prices are near their normal seasonal peak.
But this has not been a normal season for refiners. A fire knocked a 170,000 barrel-a-day refinery in Texas offline last month. Last week, a power outage shut down production at a 100,000 barrel-per-day refinery in the Los Angeles area. Nationwide, refinery output slipped to 85 percent of capacity last month and inventories have fallen sharply.
As a result, gasoline inventories last week fell by 3.8 million barrels to 216.4 million barrels, a sharper decline than the 1.4 million-barrel drop that analysts had expected. Gasoline imports have been running lower than normal for this time of year.
Meanwhile, demand has been running stronger than usual for this time of year, especially for diesel fuel.
That’s been good news for the refiners that have kept their production online; profit margins have more than doubled since January, according to Friedman Billings and Ramsey energy analyst Jacques Rousseau. He figures refiners' profit margins jumped to $22.05 a barrel on March 9 from $10.45 a barrel at the start of the year.
With pump prices rising, that profit surge has also brought complaints that consumers are being gouged.
“We’ve allowed so many mergers in the downstream industry that our markets are noncompetitive,” said Tyson Slocum, director of Public Citizen's energy program told CNBC. “Our energy trading markets, where crude oil and gas prices are set, aren’t transparent enough … There’s no government regulation there."
But neither domestic refiners nor U.S. regulators have any control over global gasoline markets. Higher pump prices in the U.S. typically bring an increase in imported gasoline, which helps ease tight inventories. Analysts say that — barring further unplanned refinery outages — tight inventories should ease up by mid-April, taking the pressure off retail prices.
Gasoline dealers should also be free of the bottlenecks that popped up last year, after a switch to ethanol as a key summer blend ingredient put a crimp on supplies and a sharp spike in prices in some areas. A boom in ethanol production since then has produced ample supplies this year, and prices are down sharply from last year’s peak levels.
But drivers in California, where pump prices have posted the biggest gains, may continue to face price spikes even after the rest of the country gets some relief. That’s because refining capacity in California has not been keeping up with demand. And because relatively few refiners outside the region can produce gasoline that meets the state’s tough environmental standards, inventories there will likely remain tighter than elsewhere in the country
“It is a very clean fuel, but the price you pay for that is that you get isolated from the rest of the country,” said Kloza.