Gas prices: Fact or fiction?

Gas prices: Fact or fiction?

By Michael Binstock

Acorn Automotive Editor

Last weekend was just a regular weekend in the Binstock household. We did a lot of shopping. We went to the market. We went to the home store. We went to a trendy clothing store. And I noticed something. In none of these stores did the price change between the time we walked in and the time we walked out. Also the price wasn’t adjusted up on items the store already had in stock, just because the owners thought that an impending war might cause a run on red T-shirts.

Have you been to the gas station lately? I did on Saturday and I watched, with bemused amazement as the staff adjusted the prices up by three cents in the time it took me to fill my tank with $20 of premium. It went from $1.95 per gallon to $1.98 and I didn’t see a tanker pumping out more expensive fuel.

As most readers know, I’m from Europe where they’ve been paying over $5 per gallon for regular fuel for many, many years without riots or hours and hours of boring mouthpieces on talk radio telling anyone who will listen that the world as we know it is coming to an end.

Also, they don’t change the rules or the ball in mid-innings. If a tanker delivers gas to a station on Friday at a specific price, then the gas station should wait until a new delivery is made at an increased rate before changing the price at the pump. It’s unfair to the consumer and makes it difficult for the fuel companies to keep a straight face when accused of profit manipulations.

According to AAA, the average price of gasoline spiked almost 10 cents per gallon last week as fears of war and supply interruptions caused higher prices for the seventh consecutive week. The Weekend Gas Watch is compiled by the Automobile Club of Southern California. It monitors the average price of gasoline at popular destinations for motoring trips.

Currently, the average price of self-serve regular unleaded gasoline in the Los Angeles–Long Beach area is $1.789 per gallon, which is 9.4 cents higher than last week’s price, 18 cents higher than last month and 51 cents higher than last year.

In San Diego, the price is $1.828, which is nine cents higher than last week’s level, 16 cents higher than last month and 49 cents higher than last year. Motorists in the Central Coast have an average price of $1.822, which is eight cents higher than last week’s price, 14 cents higher than last month and 45 cents higher than last year.

"We’ve seen gasoline prices increase about 22 percent since the first of the year, when the price run-up began," said Carol Thorp, Auto Club spokesperson. "War fears and the ongoing petroleum workers strike in Venezuela are the major reasons for the price hikes."

Scott Dean is British Petroleum’s spokesperson. BP now owns ARCO and is the largest petroleum company in the world.

ARCO in our area has a mix of company owned and franchised stations. For the company owned stations, "head office" controls prices but he admits that as they "price competitively" there can be differences from corner to corner. Additionally, managers have some leeway so if at a specific location a competitor puts up the price, so follows the ARCO station.

We have an insatiable thirst for gasoline, and with sport-utility vehicles (SUVs) growing in popularity, we are only getting thirstier. Just look at the roads and highways and you’ll see that a severe gas shortage would practically cripple the country. Americans drive more than 2.6 trillion miles per year in automobiles, light trucks and SUVs, according to a government report. That’s equal to 14,000 round trips to the sun. Today, we drive almost twice as much as we did in 1980 (1.5 trillion miles) when gas prices were at their highest.

The United States consumed an average of 19.5 million barrels of oil per day (bbl/d) in 2000, according to the Department of Energy. Of that, 43 percent was used for motor gasoline. The rest was used for distillate fuel oil, jet fuel, residual fuel and other oils. Each barrel of oil contains 42 gallons, which yields 19 to 20 gallons of gasoline. This means 360 million gallons of gasoline is consumed every day. When you consider that there are about 100 million households in the United States, this averages out to about 3.6 gallons per household per day.

Typically, the demand for gas spikes during the summer, when lots of people go on vacation. Holidays like Memorial Day and the Fourth of July create logjams of tourist traffic during the summer. This high demand usually translates into higher gasoline prices, although that’s not always the case.

When you pump $20 dollars into your tank, that money is broken up into little pieces that get distributed among several entities.

Gas is just like any other consumer product: There’s a supply chain and several groups who are responsible for setting the price of the product. The media can sometimes lead you to believe that the price of gas is based solely on the price of crude oil, but there are actually many factors that determine what you pay at the pump. No matter how expensive gas becomes, all of these entities have to get their slice of the pie.

How high will gas prices go? I don’t think anyone has the answer to that question.

We do know that prices don’t reflect a truly free market. If prices were left to non-political conditions, we wouldn’t be complaining about $2, but more about $3 or $4 per gallon.

Like all crises, this one will pass. The price will come back down to a point at which we get accustomed. Or we will get used to paying current prices and we’ll get up in arms again when the next round of price increases take place.

Until then I’ve taken out my old bike. I don’t intend to ride it as the cost of getting it serviced is about the same as a month of increased gas prices.