Pumping supply and demand

Gasoline prices: Up or down, it's not so simple to figure out what drives the cost of filling your tank.

September 08, 2001

WHEN gasoline prices soar or plummet, the reason given is always the market. Simple supply and demand.

Except that the basic economic explanation is never so simple.

Pump prices are typically raised for Labor Day weekend. This year, instead, they were mostly stable in these parts.

But demand for gas all summer has been at historically high levels, peaking in late June. And pump prices have dropped, sinking nearly 30 cents a gallon from the mid-May peak.

In fact, some refiners cut back on their production in summer in an effort to curb the oversupply and further price drops. Then a series of shutdowns at major refineries for repairs and maintenance caused regional supply shortages, with localized price spurts that had ripple effects across the country.

With the steady decline in national gasoline inventories over the past month or so, and with refineries operating at less than their summer peak capacity, the prediction is for higher prices in the coming months.

That has driven gasoline-futures trading prices to their highest level in two months.

Local price competition (and regional supply gluts) can always confuse the picture. Wholesale prices in California have skyrocketed 40 cents a gallon over the past month, while the rise in oil patch Houston has been but 10 cents. But the respected Lundberg Survey found the lowest pump prices in the nation - $1.14 for regular - in, of all places, Fresno, Calif.

Taxes and pricing laws also play a role. Come next month, Maryland joins a dozen other states in limiting price competition. Gas stations in this state won't be able to charge customers less than the average wholesale price plus taxes and transportation costs. Gas price wars will depend on how little profit per gallon the retailer will take.

Simple supply and demand?

Not with all those gasoline additives.

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