Low oil prices are not translating into low gas prices

The economy is in tatters. Oil prices are plunging. So why are gasoline prices closing in on $2 a gallon again?

The national average price for a gallon of regular gasoline was $1.97 Sunday, according to the Oil Price Information Service (OPIS) and AAA. That's up 22% since pump prices hit a five-year low of $1.61 on Dec. 30.

Oil prices, despite a Friday rally, have fallen about 16% over the same period.

A big reason for the disparity: refiners. Beset by weak consumer demand and losses on gasoline sales, oil refiners have scaled back production since late December. The average utilization rate at U.S. refineries was 81.5% as of Feb. 6, the lowest in 17 years, not including hurricane-related slowdowns, according to the Energy Information Administration. As recently as early December, refineries were running at 87.4% of capacity.

Refineries typically shut some units for maintenance this time of year. But many are trimming output because demand is anemic. That tends to rile consumers who view low gas prices as a small silver lining in a dismal economy. But go easy on the poor refiner, analysts say.

"If you're losing money on something and you're producing at 90%, you're going to cut back," says OPIS chief oil analyst Tom Kloza.

"If there's no demand, … there's really not a whole lot of point to making extra gasoline," says Bill Day, spokesman for Valero, the largest independent U.S. refiner.

Such cutbacks are common in other industries, Day says. Still, Kloza says, "They probably overtweaked it a bit."

But, Kloza says, that's likely because refiners didn't slash production enough the last quarter of 2008. Back then, while the global energy market — which sets crude prices — was weak, U.S. demand for gasoline was even more feeble. Wholesale gasoline cost several dollars less a barrel than crude oil, and refiners lost money on every gallon they sold. They offset their losses with profits on diesel fuel. Now, refiners are earning about $17 a barrel, says analyst Phil Flynn of Alaron Trading.

Another reason for the apparent disparity: While the nation focuses on benchmark oil prices, such as Nymex, other types of crude, such as Brent or Maya, trade about $10-a-barrel higher, Kloza says.

Don't worry yet about $4 gasoline. If high profit margins persist, refiners will ratchet up production, Day says. Kloza says gas prices likely will head toward $2.50 a gallon through March. But they'll soon stabilize and drift down again, Flynn says.

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lifterdead said:

The is a BIG disconnect here. Americans shouldn't be getting cheaper gas. If anyone in the government had any foresight, they would've taxed the hell out of gas 20 years ago. 4$ gas = fair.

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high taxes on gasoline is the problem.....not the solution.

over 43 different taxes are imposed on the production and distribution of gasoline by various levels of government.

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