Future decides today’s gas cost

The area’s average gas price is nearing the record set last May.

THE VINDICATOR

By DON SHILLING

VINDICATOR BUSINESS EDITOR

The price of oil briefly topped $100 a barrel for the first time this week, and you were paying more for gasoline by the next day.

You aren’t alone if you are wondering why.

Linda Casey, a spokeswoman for Marathon Petroleum Co., said consumers often question why gas prices rise almost immediately when there is a spike in oil prices.

After all, the thinking goes, the gasoline that you are pumping was made from oil that was bought at a lower price. Shouldn’t the gasoline’s price stay the same until its replaced with gasoline that came from more expensive oil?

That doesn’t happen overnight. It takes about 30 days for oil to be bought, refined into gasoline and transported to a gas station.

Casey said oil companies don’t think like that. They are looking ahead to the cost of replacing the gas that’s bought. Gasoline prices have to be set so the company has the cash to buy the oil that’s needed, Casey said.

If oil is at $100 a barrel, Marathon needs to spend $100 million a day on oil. The company buys about 1 million barrels of oil a day.

Casey uses the example of running a lemonade stand. If you expected demand for lemonade to be steady and you saw that the grocery store had increased the price of lemons, you might want to increase the price of your lemonade. That way, you would have enough cash to buy more lemons without sacrificing profits.

Area residents saw how that worked this week.

The price for oil to be delivered in February crossed $100 a barrel Wednesday, although it fell back later. By Thursday, some stations in the area had increased their gas prices by 4 cents a gallon to $3.13.

If pump prices are tied so closely to oil prices, then shouldn’t gasoline prices fall rapidly when oil prices go down?

Not necessarily, Casey said.

Often, oil companies raise their prices in increments because they don’t want to anger their customers, she said. If it takes a while for prices to rise to a desired level, it will take some time for them to come down when oil prices fall, she said.

Oil prices have risen to record levels because of increased worldwide demand and international tensions.

Lately, local gas prices have risen so much that they are closing in on records that were set last May.

AAA said Friday that the average price for regular gas in the Youngstown-Warren area was $3.119, a one-day increase of about 2 cents.

“That’s just 8 cents below a record, so a record is definitely a possibility,” said Bevi Powell, an AAA spokeswoman.

The record average price for this area is $3.207. The AAA’s average price is based on credit card transactions for the previous day.

If the local record isn’t threatened soon, it very well could be once the summer driving season starts, Powell said.

Prices are pushed up in the spring because demand rises and summer blends of gasoline cost more to make. Summer blends are more environmentally friendly.

Also, refineries tend to have outages in the spring when they are being prepared for the change to summer blends, Powell said. Refinery outages reduce supply, which causes prices to rise.

shilling@vindy.com