Once again it’s ‘sticker shock’ at the gas pump

March 30, 2012

Customers around Michigan, and across the country are suffering “sticker shock” when they take their vehicles to the pumps this week.

Gas prices in mid-Michigan – specifically the Clare area – have climbed to as high as $4.15 per gallon.  The average across the State was $4.06 on Thursday and the national average was listed at $3.92.

“I totally don’t know why this is going on,” said Clare Shop ‘n Go Manager Balvinder (Lucky) Singh. “Our price is based on how much we pay and what is being charged at other stations.”

His statement was echoed by other station owners and managers in the area Thursday.

When asked why he thinks the gas prices are so high, Dennis Pohl, owner of Pohl’s Market at 2931 West Coleman, south of Farwell in Gilmore Township, said, “I have no idea, other than the price of oil. We are at $4.06 right now. We set our own prices based on cost and other area prices. My guess is it will go back down some then go back up again by summertime.”

Mike Duggan, owner of the Harrison Quik Stop on North Clare Avenue, said, “We are the last to know why prices are up. As prices go up, the retailers like us make less and less. People don’t want to believe that but it is true. This is a tough business to be in.” He said he believes traders can drive the price up just by speculating.

Duggan said his wholesale price for the last load was approximately $4.00 per gallon and he was selling it for $4.09. “And,” he added, “If the purchase is a credit card sale, it costs us approximately another 2.5 percent. That means we are just about breaking even.” He said the wholesale price was up to about $4.03 per gallon on Thursday morning and his price at the pump was $4.15 per gallon.

Calls to the Next Door Food Store on the south side of Clare and to Johnson Oil, the Gaylord offices of the owners of Cid’s Marathon on the north end of Clare, were not returned.  The price at the Next Door station was also $4.15 a gallon Thursday morning.

About.com said high gas prices are usually caused by high prices for crude oil, which accounted for 72% of the price of gasoline as of February 2012. Distribution and taxes influence the remaining 28% of gas prices. Usually, distribution and taxes are stable, so that the daily change in the price of gasoline directly reflects oil price fluctuations.

About.com US Economy says “oil prices are set by commodities traders who buy and sell futures contracts on the commodities exchanges. Commodities traders can create a sel-fulfilling prophecy by bidding up oil futures.

It has happened many times before. In April 2011, fears of unrest in Libya and Egypt sent oil prices up to $113 a barrel. In May 2011, as oil prices dropped, gas prices stayed high. Why? Commodities traders were concerned about refinery closures due to the Mississippi River floods

In the summer of 2008, gas prices rose to $4 a gallon as oil prices skyrocketed to $145 a barrel, even though demand and supply were fairly constant. In summer of 2009, gas prices again rose, despite the recession, which decreased demand. Commodities traders were the reason for both. Gas prices also usually rise during the summer vacation season, as driving increases. Finally, gas and oil prices also increase whenever there is concern about surging demand from China and India, or a curtailment of oil supply.

Consumers are angry and wondering what they can do about it this time. One reaction, a country-wide boycott, is being urged on the internet.  About.com Urban Legends talks about a boycott on April 15. The flyer (source unknown) says, “If all users did not go to the pump on the 15th, it would take nearly $3 billion out of the oil companies’ pockets for just one day.” It continues, “In April, 1997, there was a ‘gas out’ conducted nationwide in protest of gas prices. Gasoline prices dropped 30 cents a gallon overnight.”

About.com US Economy disagrees. They say a boycott would probably not lower prices very much. “That’s because the other elements of gas prices would take a long time to change. Taxes, which comprise 19% of gas prices, would require legislative approval, which could take months. Refinery costs (also 19%) couldn’t be lowered, and neither could distribution costs (9%), both of which are fixed. In addition, other pressures on the price of oil, such as dollar decline and commodities traders, would not be impacted by a gasoline boycott.(Source: EIA, A Primer on Gas Prices)”

Pump prices and customer frustration are expected to remain high. Analysts say they believe that oil will never stay much below $100 a barrel for an extended period again. Current high costs and efforts to lower our dependence on foreign oil from the Middle East have led to an increase in exploration. Substantial new reserves of oil have been found in the US, off the coat of Africa and in Canada. Trouble is this oil is hard to get and expensive to produce, so when the price at the pump drops, the more expensive production also declines – leading to higher prices again.

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