There was a moment, or at least it seems like a moment now, when you could roll into the filling station as the gauge fell to a quarter, plop a $20 on the counter, and say, “I’ll take a fill.”
Okay, maybe it wasn’t an over-the-full-line fill, but it was close and it felt cheap. That was back in December, when local gasoline prices cratered at $1.71 per gallon for regular, according to the Utility Consumers’ Action Network, which monitors local motor fuel prices.
With the average local gasoline price now in the upper $2.50s per gallon — perhaps $2.60 by the time you read this — you’ll need to pull at least another $10 from the wallet for the same fill.
To those with longer memories, current prices may still seem like a bargain. Last June, the average cost of regular here peaked at $4.62 per gallon. Today’s $30 fill was costing about $56 last summer.
Most experts predict that gasoline prices will continue upward through the summer. But the rising prices come at a historic point. Gasoline consumption fell in the United States last year. In California, consumption has been declining since 2005, falling about 6 percent since then.
Is this the result of folks swapping gas-guzzlers for more fuel-efficient cars? Or driving less to save money? Or a combination of several factors, including rising unemployment? Nobody knows for sure. What is clear is that the downturn in gasoline demand in California came before the housing market busted and the current financial crisis.
The national trend may not last long. Michael Morris, an economist with the federal Energy Information Administration, said the agency is projecting an end to the downward trend in U.S. consumption by the first of July. He says the increase in demand plus the higher costs of refining summer blends of gasoline are pushing prices higher.
“People are responding in a gradual, lagging way to the lower prices we have seen and are driving a bit more,” said Morris.
And then there’s the influence that crude-oil prices have on how much you pay at the pump. Black gold reached an all-time high of $147 per barrel last summer, only to plummet as low as $37 in December, roughly tracking the rise and fall of gasoline prices. Now it’s trading in the upper $50s and has been climbing.
But consumer advocates refuse to accept that crude oil costs or increasing demand are responsible for rising pump prices.
“’Tis the season to be gouging,” said Charles Langley, who oversees the Fuel Tracker website for Utility Consumers’ Action Network. “We are in that season when gas demand is increasing, and the big oil refiners have done a splendid job of eliminating competition.”
Advocates like Langley point to the effect that domination of the gasoline refining industry by just a handful of players has on prices.
In 1993, the five largest refiners controlled about 33 percent of the nation’s gasoline-refining capacity, while the ten largest controlled 56 percent, according to Public Citizen, a Washington, D.C.–based consumer organization. By 2005, the five largest refiners controlled 55 percent, while the ten largest had 81 percent of the nation’s refinery capacity.
Along with the concentration have come generally higher profits for refiners, particularly during times of shortages. Following Hurricane Katrina, the Wall Street Journal reported that refinery profits peaked at nearly $41 per barrel.
That doesn’t bode well for those expecting bargains at the pump this summer. Despite recent increases in refinery production, statewide inventories of gasoline hover around five-year lows, according to the California Energy Commission.
A spokesman for the Western States Petroleum Association insists that the gasoline market remains competitive. “This is a very public and transparent business,” said Tupper Hull. “Consumers are confronted by large signs with prices as they drive and see movement and effects of the market at work.” Hull also underscored that numerous investigations of the gasoline market in recent years have found no evidence of illegal collusion or other anticompetitive violations of law. “The record of people with a lot of authority and the power to subpoena has resulted in the conclusion that this is a competitive, free, and unfettered market,” he added.
Tyson Slocum, director of the energy program for Public Citizen, has a different understanding of the investigation results. Slocum says that while federal investigators from the General Accounting Office and the Federal Trade Commission did not find evidence of legal violations, they did find evidence of anticompetitive activity. “It’s true that they haven’t been found in violation of antitrust laws, but that is because antitrust laws suck,” said Slocum. “This is not Teddy Roosevelt’s antitrust era.”
Despite federal projections of an uptick in demand nationwide, the trend to lower gasoline consumption continues in California.
The most recent report from the state Board of Equalization, which collects gasoline taxes and is therefore the best source for fuel-consumption data, found that gasoline consumption in January was 1.8 percent lower than it was for the same month last year.
Perhaps the most remarkable thing about the January downturn is that prices were also lower. Average gasoline prices this past January were 38 percent lower than the same month last year, declining from a statewide average of $3.30 to $2.05 per gallon this year.
Anecdotal reports from local dealers indicate that the region’s decline in consumption could be even greater than the statewide average.
“I have a lot of business accounts — construction-related companies — and they are just not buying much gasoline,” said Dave Whitlow, who owns the unbranded Spirit Auto in Lakeside.
Sam Boyd, owner of four Golden State Gasoline filling stations in San Diego, said his gasoline sales have fallen more than 15 percent in recent months.
“Things have really slid,” said Boyd, who has been in gasoline retailing for 19 years. “We are losing money right now.”
The gasoline retailer said businesses like his need to charge about 10 cents per gallon above wholesale cost to cover overhead, and those margins have been impossible to get in recent months.
“I don’t think people really understand the expense of running a station,” he said, adding that costs run upwards of $17,000 monthly.
Adding to the costs has been the recent requirement to upgrade pumps to capture additional fuel emissions, which Boyd said could run as much as $70,000 per station.
Consumer advocates say that independent dealers still play a key role in providing at least a bit of competitive pressure in the retail market.
“Right now, the independents are dying like canaries in a coal mine, and we are moving to a monopoly gas infrastructure,” said Langley of the Utility Consumers’ Action Network.
Speculators are a rising force in gasoline markets, buying and selling gasoline based upon their guesses about where prices are headed, but these buyers don’t use the fuel themselves. At least in the short term, speculators can amount to an additional source of demand, driving up prices.
“Over the last five or six years, the analysts we talk with say there are a lot more speculators, or traders, in the market, including hedge funds and other entities that trade gasoline,” said Jeff Spring, a spokesman for the Auto Club of Southern California.
He noted that speculators sometimes churn the market to the point that there’s ten times as much buying and selling as there would be if gasoline simply moved from refiners to retailers.
Last summer, Spring said, many speculators abandoned gasoline for other investment bets. Now, he said, “They are slowly creeping back into the market.”