New England gas prices soar

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February 25, 2011, 6:20 pm
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(NECN: Peter Howe, Waltham/Westwood, Mass.) Friday capped a wild week for the oil markets, with prices up 13 percent in the last week alone as pro-democracy unrest sweeps Libya and other key Middle Eastern oil producers.

And if you've been to the gas station in recent days, you've certainly seen prices jump as well, to what are now the highest late-February gasoline prices on record. It's been 2 1/2 years since this country saw $4-a-gallon regular unleaded gasolin. But as turmoil has swept through Egypt, Tunisia, Bahrain, Libya, and other oil producers -- and raised questions about whether oil giants Saudi Arabia and Iran could be next -- there's already plenty of speculation about how much more would have to happen to bring back $4 gasoline.

As dramatic and violent a week as it's been in Libya, the nation dominated by strongman Moammar Qadaffi produces barely 2 percent of the world's oil and ranks only number 12 on the list of net oil exporters, according to the U.S. Energy Department. How can drama in Libya drive up prices in New England 10 or 15 cents a gallon at many stations.

"It goes up a lot quicker than it goes down,'' says John Tommasi, an economics professor at Bentley University who closely covers the oil and gas makets. "There is some disruption that is causing the price to go up, but I think the main cause is speculation.'' Speaking of the massive popular demonstrations against Arab autocrats, Tommasi said, "It's gone from Egypt to Libya -- is it going to go to Saudi Arabia? If it goes to Saudi Arabia, there's a real problem,'' because the kingdom is the world's biggest oil producer and represents about half of all available extra production capacity to cushion shocks from supply disruptions elsewhere.

Across New England Friday morning, gas prices ranges from $3.22 in New Hampshire to $3.46 in Connecticut, according to the American Automobile Association/Oil Price Information Service daily survey. (Most other states were close to the U.S. average of $3.29: Maine $3.33; Vermont $3.33; Massachusetts $3.26; and Rhode Island $3.31.)

However, those are prices that after months of slow increases have jumped by 13 cents in the last week alone nationally, and by 9 to 11 cents in New England (9 cents in Vermont and Rhode Island; 10 cents in Massachusetts and New Hampshire; and 11 cents in Connecticut and Maine), according to the AAA-OPIS report.

AAA Massachusetts spokeswoman Mary Maguire said, "We have both fundamentals and fear. There certainly is a fear premium, and the fear premium is simply that the oil markets don't like instability and uncertainty'' and so traders and investors are bidding up the price of oil out of fear for a future supply disruption or price spike.

Some experts say as much as $10 of the $98-a-barrel closing price Friday may be attributed to that fear premium, as opposed to price fundamentals. As a rule, every $10 increase in the price per barrel of oil leads to a 25-cent-a-gallon increase in gas prices.

Normally, only about half the net price of gasoline is the cost of crude oil. The rest is refiners, distributors, taxes, and other fees. In fact, the person you should probably be the least mad at over rising gas prices is the person who owns your local gas station -- who almost certainly is making more profit selling you tonic or lottery tickets or making car repairs than from selling gasoline.

"As the price goes up the gas station owners don't make more money,'' Tommasi said. "Whether the price is $2.50 or $3.50, he's making 7 cents a gallon. The distributors set the price for them, and they have very little say on it.'' Many gas station owners will say they vastly prefer lower prices over higher because price competition is less intense.

AAA's Maguire said, "Is $3.50 a gallon conceivable this spring? It certainly is if the turmoil, unrest, and uncertainty in the Middle East and North Africa continues.''

AAA's advice is to fill up on data to know what's comparatively a good price when you see it. "Drivers should always know what the low end of the gasoline price range is,'' Maguire said. "You should shop at the low end of the range whenever possible.''

Besides the AAA daily report that you can find here http://fuelgaugereport.opisnet.com/ , another great source is www.gasbuddy.com  and its links to local-market websites with price data reported by human spotters in communities throughout New England and the nation. On Friday evening, for example, Gas Buddy was alerting motorists to prices for gas ranging from anywhere from $3.13 to $3.69 a gallon in metropolitan Boston.

And a piece of wisdom I've picked up from industry insiders over years covering this business: While different brands are known for different price levels and depending on market conditions, independent "no-name" stations can be much higher or lower than market averages, often the single biggest factor determining a given station's price is whether you can see another station from its front door -- because there's no easier form of comparison shopping.

While prices have jumped this past week, you can expect as in 2008 and other periods of roiling markets that prices will be slower to come down. To some extent, all retailers will hold onto higher prices as long as they can, and it can take time in gas as well as other industries for aggressive discounters to succeed in pushing overall price levels down as well. But in times like this when oil prices may move up or down 10 percent in a day, retailers do have to worry about being stuck with 10,000 gallons of gas they bought at price X -- and then before that tank is empty, the market price drops 10 or 20 cents, eating up their whole profit margin and more on that load of gas. That's one powerful incentive, one that's not naked price-gouging, for retailers to move more cautiously on lowering prices after they've spiked up.


With videographer Cameron Robbins

Tags: Peter Howe, oil, Libya, gas prices
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