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February 5, 2009

Open Thread — Gas Prices

by Brad Warbiany

When oil went into freefall, dropping from $147/bbl last year into the $40/bbl range, I wasn’t surprised to see gas make an enormous downward trend, and (as usual) trail the oil price by 1-2 weeks.

But since then, I’ve seen little appreciable movement in the oil price, but gas has been trending back upwards (at least here in south Orange County, CA). At the trough, gas was about $1.79/gallon locally, and it’s moved up to about $2.23/gallon. These are same-store prices, for a station I pass every day to/from work. Other stations have seemed to follow a similar trend.

So, for that, I have two questions:

1. Is this gas behavior common nationwide? I know there are a lot of reasons why the California gas market are screwed up, so if other areas of the country aren’t seeing this, I won’t be overly surprised.
2. Why is this occurring? What are the market forces driving the gasoline upward in price while the oil price has remained low?

There are a lot of potential thoughts — overshoot on the downtrend, increased demand, etc. But with oil stagnant, I don’t see (and haven’t adequately studied) the change, so I’m relying on The Liberty Paper’s readership to offer your thoughts.

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  • http://www.orderhotlunch.com Jeff Molby

    It’s been relatively stable here in Michigan. $1.70 – $1.90

  • Akston

    Stable here at 1.80-1.90 as well…though slowly trending upward.

    Could it simply be that the last spike to $4 plus proved the market would bear a higher price in many areas? I know – for myself at least – that gasoline and travel by automobile is a fairly inflexible expense. When gasoline becomes more expensive, I tend to shift the extra burden toward limiting other expenses. I’m not saying I’m thrilled about the exchange, but I still chose to drive when gasoline was over four dollars a gallon, I simply drove less when I could.

    That’s not to say that there aren’t other factors that could be moving the price in California. Any recent green legislation? None comes to mind, but I haven’t followed that much.

    Also, it makes me wonder if the CPI and other measures are moving up in general yet. All the Monopoly money being printed by both parties has got to start inflating prices at some point.

  • http://www.persnicketycurmudgeon.com persnickety curmudgeon

    I do know that gasoline is actually somewhat perishable and can’t sit forever so when over inventoried prices drop temporarily becuase inventory must be moved.

    Also I heard a story that some refinery operations are down for scheduled maintainance, hence less production.

    Also the strong dollar may have made imported gasoline more expensive, hence less available.

    Finally with unemployment rising and hence less commuting and trucking I suspect demand destruction is continuing, but at what point a gas producer needs to and can raise prices to offset volume loss I can’t say.

  • http://thelibertypapers.org/ Brad Warbiany

    Akston,

    Regarding the monopoly money, I would expect that to increase the price of oil as well, which hasn’t happened yet… And inflation tends to hit wages later than goods, so I would think that it has little to do with “proving it’d bear a higher price”.

    Curmudgeon,

    I hadn’t heard about refinery capacity going down, that could definitely be an issue. Shouldn’t a strong dollar help imports, thought? A weak dollar helps exports (which is why we’re [meaning politicians] upset at the Chinese for letting the yuan weaken alongside the dollar).

  • http://www.freedompolitics.com/ Bill Goodwin

    I was just thinking last night about the media’s capacity to report other news, given the mania surrounding the stimulus bill. In a lull, I imagine we’d have a raft of articles probing this phenomenon (for better or worse).

    As to your actual question, I wonder if public transit use isn’t more volatile in CA. Prices plummeted, riders realized they could drive cheap again, and they’ve been slowly bailing on their newfound love of transit. Just a guess.

  • http://www.persnicketycurmudgeon.com persnickety curmudgeon

    Brad – Yes you are right about weak v strong dollar my bad. One other point you may investigate, at some point they do stop refining the multiple goverment mandated winter formulations of gasoline and switch to the multiple goverment mandated summer formulations of gasoline – not exactly sure when they start stockpiling for summer but I’d bet there’s is a bi-annual price spike around this time.

  • http://thelibertypapers.org/ Brad Warbiany

    Curmudgeon,

    That’s particularly true here in CA… Our prices are somewhat unique compared to nearby states, since we have our own formulation.

  • http://threestooges.net Rob

    We saw a similar trend here in Michigan, although our prices are lower than yours in California, naturally. We got down to around $1.48/gal., but it then crept back up to just under $2/gal. I paid $1.88/gal. when I filled up last night.

  • http://www.persnicketycurmudgeon.com persnickety curmudgeon

    Rob how true but our goofy Governor, Jennifer The Mole Granholm(look to Michigan if you want to see what Obamanomics will do to the rest of the country – been going on here for 6 years already) has been playing around with gas selling rules – alternately suspending and unsuspending rules about only allowing gas tankers to travel only at night and getting waivers allowing the state to not have sell the more expensive reformulated gasolines appropriate to our region.

    Have you noticed all the E85 flex fuel cars popping up on the roads? We also have alot of SUVS and Pickups driven in winter here – many are diesels.

  • Aimee

    Here in Colorado, on our side of town, outside of Denver, we were down to $1.35. As of today it is sitting around $1.65. I still try not to drive a whole lot if I can help it. I can usually go 3 weeks without filling back up. It’s great to be able to fill up a 25 gallon van for less than 40 bucks though. It was getting close to $90.

  • http://pith-n-vinegar.blogspot.com/ Quincy

    In answer to the question about CA, there is always a Jan-Apr run up in prices in anticipation of the switchover from winter to summer blends.

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