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Even at $3 a gallon, gasoline prices still don’t reflect cost of oil

01:00 AM EST on Wednesday, November 14, 2007

By Timothy C. Barmann

Journal Staff Writer

Gasoline surpassed $3 a gallon in Rhode Island yesterday, and forecasts by the U.S. Department of Energy say it will continue to rise because the price at the pump has not yet caught up with the cost of crude oil.

Although the forecast does predict lower oil prices next year, there is no immediate relief in sight.

The average price of regular self-serve gasoline was $3.069 a gallon yesterday, up 10 cents from last week, according to a survey of local stations by the state’s Office of Energy Resources. The lowest price the survey found was $3.019 a gallon and the highest was $3.139.

A similar survey by AAA Southern New England found an average price of $3.039 a gallon.

Gasoline has risen 39 cents in the past four weeks. Over the past year, the average price has gone up 88 cents a gallon, or about 40 percent.

Price spikes at this time of year are unusual because the demand for gasoline in the United States usually declines after the summer driving season.

As usual, gasoline is being pushed up by crude oil, a major component of the fuel.

Crude oil futures reached $95.19 a barrel on Nov. 7 on the New York Mercantile Exchange, the highest since trading began in 1988.

A report issued last week by the federal energy department’s analytical arm, the Energy Information Administration, cited several reasons for the recent price spike. It blamed strong world economic growth that has driven an increase in demand for oil, moderate growth in supply from countries not in the Organization of Petroleum Exporting Countries, low spare-production capacity in OPEC countries, low inventory levels, worldwide refining “bottlenecks,” and ongoing geopolitical risks and concerns about supply availability.

The agency said that monthly average prices are expected to exceed $80 a barrel over the next several months.

Yesterday, crude oil fell more than $3 a barrel, the biggest decline in three months, after the International Energy Agency cut its forecast for global demand through 2008, Bloomberg news service reported.

Crude oil for December delivery fell $3.45, or 3.7 percent, to settle at $91.17 a barrel on the New York Mercantile Exchange, the lowest close since Oct. 30, according to Bloomberg. It was the biggest drop since Aug. 6.

Even with yesterday’s drop, it appears that gasoline prices will continue to rise. On Monday, the head of the EIA said that even though gasoline prices have also increased, they have yet to catch up with the increase in crude oil.

“We haven’t seen the full pass-through yet,” said Guy Caruso, as quoted by USA Today. Crude oil futures have risen about $20 a barrel or about 27 percent over the past two months. In Rhode Island, gasoline has risen about 41 cents, or about 15 percent in the same time period.

Over the next two or three weeks, the EIA’s forecasting models predict that gasoline will rise another 20 cents to catch up to the jump in oil costs, USA Today reported.

The EIA said it expects total petroleum consumption in the United States to average 20.8 million barrels per day in 2007, up 0.5 percent from the 2006 average. Next year, consumption is expected to grow a further 1 percent.

tbarmann@projo.com

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