The June swoon for gasoline prices - Are they really going down?

Dateline:  Terry, Montana June 23, 2009 2:30 PM MDT By:  Bob van der Valk

April showers may bring May flowers but this year it also brought forth a spring time renewal for oil refiner’s profits.  This was in the form of increased demand for gasoline after dismal first quarter results in 2009.  But now the June swoon has come too soon and the oil companies are looking forward to those summer breezes peeking just around the corner

I was waxing somewhat poetic while reading a flood of news reports this week about gasoline prices in the U.S. and Canada dropping for the first time in over seven weeks.  The average price for gasoline in both countries has dropped a whopping seven tenth of a cent of a gallon or liter this week.  Motorists have been practically been dancing in the streets celebrating their new found fortune according to on the spot media reports from many parts of the country.  Some are even quoting some experts about gasoline prices having peaked and to be going down for the remainder of this year.

But wait just a minute!  How come the price of crude oil dropped $5 to around $69 a barrel in the last two weeks but gas prices have only gone down by a fraction of a cent during that same time?  Haven’t we been told by some of the pundits that gas prices always move in lock step with crude oil prices?  That for every dollar a barrel change in the price of crude oil we are supposed to see gasoline move up or down 2.5 cents per gallon at the pump?

The answer my friend is blowing in the wind. This time around the major oil companies are not matching the independent unbranded gasoline rack prices down as fast as you were expecting.   The difference between the major branded dealer tank wagon and independent unbranded gasoline prices is now over 20 cents per gallon in the U.S. and 5 cents per liter in Canada.  This phenomenon is known in our industry as:  “Gas prices shoot up like a rocket, and drift down like a feather”.

In this case the oil companies are stocking up to be prepared in case those summer breezes change into hurricanes.  Gasoline demand has increased with April being the latest month on record showing an increase over the same month last year.  So with Canada Day on July 1^st and the U.S. July 4^th weekend just around the corner do not expect to see pump prices coming down a lot this week.

Different average gas prices have been bandied about by various agencies of the government and private companies with the motoring public somewhat confused about which number to believe.  For instance on June 22^nd the Energy Information Agency (EIA) showed the average price for a gallon of regular gasoline in the U.S. to be at $2.691 while the AAA fuelgauge reported it at $2.69.  Those two seem to be in sync but on the other hand the gasbuddy.com web site reported the average U.S. price at $2.663 per gallon.

The difference in the two reports is that the EIA and AAA uses information provided through credit card purchases.  The gasbuddy.com web site has price spotters, who log in and report pump prices from their local gas stations for both cash and credit cards.

 For instance Arco stations do not accept anything other than cash or debit cards at their pumps and are usually the lowest price in their neighborhood.  That tends to skew the average price per gallon by about 3 cents per gallon. This is due to dealers, who do accept all types of credit cards, having to price their gasoline higher by having to pay a merchant fee for each transaction to their banks.

In the short term prices will continue to go up another 25 cents per gallon between now and middle of August.  After Labor Day gasoline prices will ebb down slowly and by Thanksgiving go back down to about where they were last year at the same time.  That means you can start looking forward to $2 per gallon gasoline at a gas station near you by Christmas this year.

Now you know what is going to be happening in the refining and marketing end of the oil industry, you should go fill up your tank by this weekend before gas prices are raised.  In the Badlands of Eastern Montana we believe in the moral behind the fable of the “Milkmaid and Her Pail”, which goes:  “Do not count your chickens before they are hatched!”

Bob van der Valk resides in Terry, Montana and is the Director of US Branded Licensing with 4Refuel Inc. in Lynnwood, Washington.  He can be contacted at (971) 678-2975 or by email at:  tridemoil@aol.com

Bob’s web site address is:  www.4vqp.com/ourconsultants/thegasguy.html

Any views expressed in this newsletter are those of the writer, except where the writer specifically states them to be the views of the 4Refuel group of companies.