As bad as $4 gas is, consumer cutbacks preventing even higher prices

Posted Jul 2nd 2008 3:07PM by Joseph Lazzaro
Filed under: Consumer Experience, Commodities, Oil

U.S. gasoline consumption has declined for more than two months on a year-over-year basis, U.S. Energy Information Administration data indicates,

From a consumer standpoint, that's not only a good thing, it may be the only thing keeping already sky-high, $4 per gallon gasoline prices from moving even higher, says energy trader Jim Dietz.

"Lower demand is preventing gasoline sellers from raising prices even more. That's bad news for them, but it is helping consumers a little by keeping prices lower than what they would be, given the jump in oil prices," Dietz said.

Oil, which traded at $142.80 per barrel, up $1.83 on Wednesday at mid-day, is up about 100% in the past year. Meanwhile, the average price for a gallon of unleaded gasoline in the U.S. is about $4.09 per gallon, up about 45% during the same period, according to the EIA.

"Historically, a gallon of gasoline cost two times to three times as much as a gallon of crude oil. Now that price ratio is about 1.3-to-1," Dietz said. "If the old ratio applied, gasoline would easily be 40-60 cents higher, probably more." Dietz added that he is presently flat, or has no energy trading positions open ahead of the 4th of July weekend.

Dietz said refiners have compensated somewhat for the lower gasoline-to-oil price ratio by squeezing more gasoline out of each gallon (and barrel) of oil, and via increased operational efficiency and cost cuts, among other factors.

Refiners: Can't pass along all costs

Still, refiners can't pass on to consumers all of the increased costs associated with crude oil's record price rise -- due to that aforementioned decreased gasoline consumption by U.S. consumers -- and their margins have been squeezed, he said.

Oil producers, the companies that get the oil out of the ground, "are making a gargantuan amount of money," Dietz emphasized. Gasoline refiners, not nearly as much, this year, he said.

"At $4 a gallon, it seems almost goofy or cruel to think that gas prices are lower than what they would be if people weren't cutting back their driving, but that in fact is the case," Dietz said.

Tags: gasoline prices, inthenews, oil companies, oil prices, oil shock, refiners, U.S. Energy Information Administration

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Reader Comments (Page 1 of 1)

7-02-2008 @ 4:44PM

dallas bruhn said...

I would trade my truck for a horse, but there is no hitching rack, in front of target.

7-02-2008 @ 4:52PM

slowrideneasy said...

its purty daum sad..........i see this country going backwards because of all the greed on wall street. my ?????? is..........how many folks do they have to destroy before enough is enough?

7-02-2008 @ 6:17PM

Bill Lilley said...

It's part of The George Bush economic plan.

Commodity markets need to be shut down,PERIOD

Do you notice all the talking heads disappear when our nation is in a time of crisis?