Volatile prices at pump becoming common

Associated Press

NEW YORK

Local gasoline prices are swinging up and down ever more drastically, a result of a national fuel system that is operating with a shrinking margin for error.

Jumps of 20 cents or more per gallon in a single day are becoming more common, for example, according to an AP analysis of daily and weekly price changes at 120,000 U.S. gasoline stations tracked by GasBuddy.com. Sixty-three times this year, at least one U.S. metro area has seen such a change, such as the 24-cent increase Decatur, Ill., drivers saw Jan. 26, or the 24-cent increase in Superior, Wis., on April 30, and the 28-cent increase in Henderson, Ky., on Sept. 19.

Not since 2008 have there been so many 20-cent changes. Last year, those happened 58 times. In 2011 they happened just 21 times, and in 2010 just seven times.

“There’s more and more feast or famine,” says Tom Kloza, chief oil analyst at the Oil Price Information Service and GasBuddy.com.

The problem, analysts say, is a fuel system increasingly vulnerable to short-term shocks. That’s because refiners try to keep stocks of gasoline low to save money, just as other manufacturers aim to operate on a “just-in-time” inventory schedule. The nation has about 26 days’ worth of gasoline demand in storage, compared with 30 to 40 days’ worth during much of the 1980s and 1990s, according to the Energy Department. Also, there are 143 operating refineries, about half the total from 1980, so, if one has a problem, supplies quickly drop.

That price whiplash has a cost. Spikes in gasoline prices are more damaging to the economy than a slow rise in prices because they undermine consumer confidence, economists say.

Volatility is most pronounced in the four neighboring states of Illinois, Indiana, Ohio and Kentucky.