The revolution in Libya and unrest in other North African and Middle Eastern countries has resulted in the highest recent crude prices since 2008, but according to this morning's WSJ, "Gas is getting cheaper at the pump, a reflection of the falling cost of crude oil borne by refiners, who also are trimming prices to entice consumers who have cut back on their driving." The Journal also reports that the "federal government Wednesday...reported growing stockpiles of gasoline for the second consecutive week, a sign consumers were limiting their time behind the wheel and that gasoline wasn't in short supply...[resulting in] the price of wholesale gasoline [falling] 16% from last week's level." They added the caveat that "The price at the pump has been slow to follow because the flooding along the Mississippi River has caused distribution problems." Pretty much the standard supply and demand + supply chain disruption rationale.
The Journal quotes David Wyss, chief economist at the Standard & Poor, saying "The market went up too much because people [read: traders] were scared of the Middle East...[and that] People are still scared of Middle East, but less than they were a few weeks ago." Elsewhere in the article, the Journal claims "gasoline prices usually take longer to fall than rise as refiners try to make as much profit as possible before market fundamentals force them to lower prices."
Let's be thankful for "market fundamentals" and look at their impact upon consumers. Today's Boston Globe claims "The bottom fifth of earners, with a median household income of $9,846, spend 35.6 percent of their income on food and 9.4 percent on gas, according to Citi Investment Research. The top fifth, whose median household income is $157,631, spend only 6.8 percent on food and 1.9 percent on gas." It's also interesting to look at the US Energy Information Administration's breakdown of "what we pay for in a regular gallon of gasoline: taxes at 12%, distribution and marketing at 7%, refining at 13% and crude at 68%." The Globe and Mail provides quite a different price analysis for Canada: "taxes at 30%, refiner's margin at 20%, retail margin at 7% and crude at 50%."
So while oil companies squeeze as much arbitrage profit as possible from jittery crude trading and the Mississippi floods, Avery Ash, regulatory affairs manager at AAA, is quoted in the Journal saying "he expects gas prices to move to between $3.25 and $3.75 a gallon around the end of June." I say, plan those long summer driving trips sooner than later.
- William Busch