Saturday, February 14, 2009
Why Are Gas Prices Going Up While Oil Keeps Falling?
Crude oil prices have fallen below $34 a barrel, hitting the lowest price of the year. Yet gasoline prices at the pump have risen nearly 10 percent in the past month. The national average will likely hit $2 a gallon again this weekend, analysts say. How can oil prices keep falling and pump prices keep rising? First of all, an oil supply glut has as much to do with low oil prices as the fall in demand, says Houston-based energy analyst Andy Lipow. The U.S. benchmark for oil prices is largely set by the supply and demand balance in the little town of Cushing, Okla.—where Lipow says supplies have shot up 142 percent in four months. On the other hand, gasoline supplies are tightening—now below where they were a year ago—as refiners have cut back on production due to slow demand. The result has been a surge in wholesale gasoline prices, which really determine retail prices more so than crude oil. "Add 60 cents a gallon to the wholesale gasoline price (for freight, taxes and retailer mark up) and you get pretty close to the retail price," says Tom Kloza of the Oil Price Information Service. While oil prices have plunged 24 percent so far this year, wholesale gasoline prices have surged 25 percent. And that, analysts say, is a big reason why prices at the pump keep rising.