Have you noticed the price of regular unleaded gasoline at the pump in your area lately? In Seattle, the price went from $1.857 on January 2, 2009 to $2.066 per gallon on January 16, 2009, per the gasbuddy.com web site.
Nationwide gasoline prices have continued to increase in the last two weeks, whereas the price of crude oil actually went back under $40 a barrel. Is the wool being pulled over eyes by the oil companies or are there some other explanations for the cost discrepancies?
The view of the common man is that when crude oil price go down, gasoline price go down. That has not been the case as of late. The reasons gasoline prices have been rising are as a murky as a barrel of oil, but here are couple of them.
The main reason is that it was caused mainly by the oil refineries, that are either down or having glitches, reducing overall fuel production. Another explanation is that the February contract for crude oil, which closed Friday at $36.51 a barrel, expires on Tuesday. The contract for March is already significantly higher, settling at $42.57 on Friday with June even higher at $51.35 a barrel.
The graph below details the estimated gross margins for both refiners and distributors. This an example of the price for regular unleaded gasoline in California taken from the Estimated 2009 Gasoline Price Breakdown & Margins Details Report issued by the California Energy Commission web site showing us the different profits and costs involved in the pricing gasoline.
It shows that the price of gasoline is being controlled by the market. In the last two weeks, the independent unbranded pump prices have remained the same with the branded major oil companies increasing theirs.
What a difference a week makes for the unbranded independent stations in California. They went from a 34 cents negative margin to being "only" a nickel a gallon in the red per this graph. It also belies the fact that the gas station dealers are the ones raking in the extra profits in the current up market for gasoline.
How does my local gas station set their pump prices? Gas station owners will try to maintain a price that allows them to afford the next shipment of gasoline, but they are also trying not to give the competition an edge pricewise.
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With what is happening with gas prices you may not feel like kidding around when pulling up to the pump next time you fill up. But, the dealer is certainly not the one to blame for rising gasoline prices.
So, who's kidding whom on setting gasoline prices? We live in a new world in the petroleum industry this year with many changes in store for us, including higher gas prices. The major oil companies control the gasoline prices by pricing it in different areas of the country according to what the market will bear. So, if you want cheap gas, move to Billings, Montana, where gasoline is still being sold for $1.339 per gallon.
Disclosure: I hold no positions in any of the commodities or equities mentioned in the above article.
