The Star Beacon; Ashtabula, Ohio

August 3, 2013

Gas prices on a roller coaster

Hamilton JournalNews

— Gasoline prices doubled in a little more than two years following the depths of the Great Recession in December 2008 when the national average for a gallon of regular fell to $1.69.

Even with the end of the recession, however, that big run-up in prices has held — gyrating unpredictably between $3 and $4 since the beginning of 2011 — while fuel consumption and vehicle miles driven have fallen.

According to data from the Energy Information Administration, total gasoline sales by suppliers has trended steadily downward since August 2005, when the national average price for a gallon of regular gas was $2.49 at the pump. (It was $2.44 in Ohio.)

In addition, the number of miles traveled in the nation has been trending down since November 2007, and is currently 2.8 percent below the peak.

So why doesn’t decreased demand increase supply and drive down the prices?

The oil and gas markets don’t work that way, experts say.

If demand gets too low in this country and threatens to drag prices down, oil refineries look for better paying markets elsewhere around the globe.

“Refineries here can oftentimes make more money by exporting their products,” said Patrick DeHaan, a senior petroleum analyst for “And so when we’re in that kind of situation where oil refineries can export products, it keeps pressure on supply here in this country.”

The increased domestic supply, in part sparked by new drilling technologies such as hydraulic fracturing, or fracking, has led to exporting of gasoline and diesel “for the first time in mass amounts,” said Stephen Hightower I, president and CEO of Hightowers Petroleum Company in Middletown.

“So instead of that product coming back into the marketplace, where it would create an excess supply and the price would actually be dropping,” Hightower said, “refineries are shipping the product to Europe, Africa and India and China.

“That alone, with the loss of refining capacity, has constrained supply. So, therefore, the price goes up.”

Welcome to the global economy.

Since the beginning of 2011, the prices haven’t shown any sign of going anywhere permanently, a Middletown Journal/ Hamilton Journal News analysis of gasoline prices has found. During those 31 months, the price for a gallon of regular in Ohio has bounced up and down from a low of $3.10 to a high of $3.91.

In just one day this week in the region, for example, the price for a gallon of regular gasoline ranged from $3.25 to $3.65.

Drivers in Ohio, however, have it a little bit better than the nation as a whole when it comes to pain at the pump.

Over the last 10 years, the average monthly price of regular unleaded gasoline in Ohio has been about 6 cents or 2.3 percent lower than the national average, this newspaper’s analysis of data from the U.S. Energy Information Agency found.

The state’s average price for a gallon of regular unleaded at the end of July was $3.41 compared to $3.65 for the U.S.

Ohio’s July average dipped 30 cents from June, but prices at many gas stations this week spiked back up over $3.60, the average monhly price since the beginning of 2011.

Part of the reason Ohio drivers get a break is geography, Hightower said.

“You’ve got product coming in from Canada,” Hightower said. “You’ve got refineries in Ohio both in the Toledo area, the southern part of Ohio and in the middle of the state as well, like Lima. And all the major pipelines go through Ohio, so it’s supply.”

Another cause is slightly lower gasoline taxes, said DeHaan.

In fact, at 46.4 cents per gallon, Ohio ranks 22nd out of the 50 states, and is slightly below the national average of 49.4 cents per gallon, according to numbers compiled by the American Petroleum Institute.

Still, Friday’s $3.59 a gallon at the Kroger on Yankee Road in Liberty Twp. was not sitting well with the customers.

“It’s been so long since gas has been reasonably priced, I can’t remember what it was like,” said Patti Kronour, of Liberty Twp., who spent about $58 to fill up her vehicle Friday. “I try to work from home at least one day a week because of gas prices.”

Kronour, who saved 35 cents per gallon on her fill-up, said her family utilizes Kroger fuel points to save money and she has been purchasing more gift cards at the grocer to earn double rewards.

“That’s huge,” Kronour said of the savings. Kevin Mulcare, of Liberty Twp., who spent about $75 Friday filling up his Chevrolet Silverado, said his driving habits have changed some to offset rising gas prices. He said his family carpools more often to sporting events and school for his three children at Hamilton’s Badin High School.

“When it gets over $4, I will consciously make efforts,” Mulcare said. “I don’t want to shortchange the kids and their activities.”

At least they’ve stayed below $4.

And Hightower said he knows why: The oil industry learned an important lesson during the Iraq War, when prices shot up in some areas close to $5 a gallon.

“The industry was then able to see the tolerance of the U.S. consumer and how much they would actually spend before they would stop driving,” Hightower said. “And anything over $4, east of the Rockies, will begin to constrain driving, which would then constrain consumption and would then effect their profits.

“So they know what the threshold is. And you will not see $6 gasoline for that very reason.”

Asked what price would make them stop driving, several gas customers interviewed Thursday said $4 was the limit.

DeHaan, however, does not agree with Hightower about the effect of the oil industry on prices. The oil companies, he said, don’t have that power.

“Some of what they do impacts the price, but it’s the free market that dictates prices,” DeHaan said. “And to suggest that oil companies will raise prices up until people stop driving, that’s pretty flawed.”

DeHaan said it would take a “significant physical disruption” in the supply chain, such as a refinery going down or a destructive hurricane, to push gas over $4 a gallon this year.

He predicts that prices will remain mostly in the mid-$3 range for the rest of the summer, and then drop some in the fall when the weather gets cooler.

“But it could be a volatile rest of the year,” DeHaan said. “Prices could be all over the place.”