Why are gas prices up, when oil is staying steady?

AAA Gas Price Averages

Norfolk:
Thursday - $1.79; Last Month - $1.52

Roanoke:
Thursday - $1.81; Last Month - $1.50

Richmond:
Thursday - $1.82; Last Month - $1.55

Charlottesville:
Thursday - $1.85; Last Month - $1.57

Virginia:
Thursday - $1.83; Last Month - $1.57

National:
Thursday - $1.91; Last Month - $1.69

 

It’s the question more and more people are asking.  Why are gas prices going up, while the price for a barrel of oil is staying around the $40 range?

According to AAA Mid-Atlantic’s gas price tracker, the average price for a gallon of regular unleaded stood at $1.81 in the Roanoke region as of Thursday morning.  That’s up a penny overnight, and 31 cents from this day last month, when they stood at $1.50.  The overall average for Virginia stands at $1.83 Thursday, also up a penny overnight and up 26 cents from this day last month.

AAA’s Windy VanCuren says the reason gas prices have been increasing in the past few weeks, “Is because gasoline refiners have been severely cutting back their output of gasoline either by design or due to “maintenance and operational issues”.“  VanCuren adds, “Industry watchers who trade gasoline trade futures seem to be persuaded the industry will eventually be able to cut the nation’s gasoline inventories enough to keep retail prices at an elevated level.“  Basically meaning they expect the law of supply and demand to swing prices higher as supplies of gas shrink.

However, Americans have cut back on their driving.  And VanCuren points out that gasoline demand data for the first few weeks of the year indicates demand destruction for gasoline is gathering momentum.  “Last week’s data from the Energy Information Administration indicates demand for gasoline is running about 5 percent below year ago levels. One year ago demand was running about 3 percent below the levels of 2007. So clearly American motorists are not doing their part to draw down gasoline inventories and inflate industry profits,“ VanCuren says.

Also potentially contributing to the gas price spike, news that came out last week about workers affiliated with the United Steel Workers Union, contemplating a strike this week at about one-third of the nations’ gasoline refineries.  “While a strike is normally an unwelcome occurrence by most companies, news that labor and management were at loggerheads seemed to be welcomed by a market looking for more ways to cut back gasoline production and justify higher prices and profits for refined products,“ VanCuren said.

Looking forward, VanCuren said, “February will be an interesting month for gasoline price watchers because this is the time of year when the industry on the west coast needs to begin working hard to deplete its inventory of winter fuels and start preparing for the introduction for warm weather blends. In normal times – and these appear to be anything but normal times – consumers should expect to see some price relief before prices rebound in March, April and May. So far that relief has not been forthcoming, so it remains to be seen if it will make a belated appearance this year.“

VanCuren added, “If this much-anticipated-by-AAA retail price decline does not occur, then consumers may find themselves facing another spring season of aggravatingly higher gasoline prices even as the price of oil remains in the basement. This is because as gasoline is made in small and smaller quantities, less and less oil is consumed.“