Drivers flustered as oil, gas prices swing like stocks
Like most drivers, Leanna Hamill used to compare gas prices as she passed service stations, hoping for a cheaper price. But lately, with energy prices yo-yoing like stock markets, Hamill has given up trying to keep track and does not even look at pump prices when she fuels her Ford Escape.
“I can’t control them, and getting outraged over them or stressed was just not anything I wanted,’’ said Hamill, a Hingham lawyer. “They’re up 2 cents, they’re down 1 cent, and I thought, ‘Why?’ Why does any of this matter?’’
Hamill’s price-monitoring fatigue may be familiar to many drivers who have watched prices rise, fall, rise, and fall again in recent months. Crude oil prices, which had been above $110 at the beginning of May, fell in June, only to rise again briefly before plunging close to $80 earlier this month. This week, crude climbed above $87 a barrel, only to dive yesterday to about $82.
Uncertainty about the economy is driving these gyrations, and many analysts expect sharp swings in financial and commodity markets to continue until investors get a clearer sense of where the global economy is heading. But with a slower-than-expected recovery looking like a best-case scenario and the summer driving season coming to an end, analysts expect prices, overall, to decline, at least in the near term.
Phil Flynn, an oil analyst with PFGBest, a commodity futures broker in Chicago, said he expects gas prices to fall 10 to 25 cents in coming weeks. “We’re going to make a run for the low price of the year,’’ he said.
But that is not fast enough for motorists such as Tim Downing. Downing has heard about oil prices falling sharply over the past few weeks but said he is still waiting to see comparable declines at the gas pump. Gas prices in Massachusetts only just started falling last week - after a month on the rise - and a gallon averages about $3.67, down 7 cents from Aug. 9, according to AAA Southern New England.
“It’s funny that you see the gas prices go up immediately whenever oil prices do, but you never see them go down as quickly,’’ said Downing, an engineer at New Balance who commutes from Medford to Lawrence or Brighton. “It’s frustrating.’’
Gas prices often lag behind movements in crude, particularly when demand is relatively weak, as it is today, analysts said. It is hard for retailers to lower prices quickly when crude oil starts to drop because they first have to sell inventories bought when crude traded at $100 a barrel.
In general, it takes two weeks for a change in crude prices - which account for more than half the cost of gasoline - to begin to find its way to the pump, said Energy Department economist Neil Gamson, and about a month before the full impact is felt.
Every $1 change in price of a barrel of crude oil translates to roughly 2.4 cents per gallon of gasoline, Gamson said. State and federal taxes are the next largest component of gasoline prices, accounting for about 40 cents per gallon, according to the Energy Department.
If gasoline prices continue to fall, that would be good news for US consumers. Each 1 cent decline in gas puts an additional $1 billion a year into consumers’ pockets, said Chris Lafakis, an economist with Moody’s Analytics, a forecasting firm in West Chester, Pa.
Lafakis said he expects gas prices to drop 10 to 15 cents over the next week, following last week’s slide in oil prices. That plunge was spurred by a downgrade in expectations for global growth resulting from weak economic data, the European debt crisis, and blows to consumer and investor confidence from the debt ceiling debate.
“The decline in gas prices hasn’t been fully realized given how much oil prices have declined,’’ Lafakis said
Joe Petrowski, chief executive of Cumberland Gulf Group in Framingham, a major Northeast fuel distributor, said retailers have a “strong economic incentive’’ to sell cheaper gas. The lower the price, he said, the more customers drive and the more often they return - not only buying gas but also items at station convenience stores.
The average profit margin for a gas station owner is about 10 cents a gallon, Petrowski said. But “every trip [where] you come into the store and buy a cup of coffee or a food item,’’ he added, “there’s more money being made by the retailer.’’