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Pump prices rise quickly as refiners cut back
Monday, 19 October 2009 00:00

Many people filling up cars for the week on Monday are getting a big surprise: gasoline prices have been climbing rapidly.

Gas is still a relative bargain compared with years past, but cheap fuel has been the good news story of a country racked by anxiety over making ends meet. Gas prices have now risen for six straight days.

After lingering below $2.50 for weeks, the national average price for a gallon of gas crossed that barrier Friday and has been moving up since. Prices rose almost 2 cents to $2.564 per gallon overnight, according to auto club AAA, Wright Express and Oil Price Information Service.

Prices in California, Hawaii and Alaska are above $3.

The force behind prices at the gas station can be found in the U.S. dollar, which has been falling steadily since the month began, and at refineries that are slashing production.

Because oil is bought and sold in dollars, crude essentially becomes cheaper for global investors and there has been a run recently on the New York Mercantile Exchange.

A barrel crossed $75 for the first time on Wednesday and came close to $80 Monday morning.

Benchmark crude for November delivery traded up 18 cents at $78.71 on the New York Mercantile Exchange by midday.

How long oil and gas prices continue to move upward is not known, but demand for both remains muted.

"We can certainly produce as much fuel to meet the demand we're seeing right now," said Fred Rozell, retail pricing director at Oil Price Information Service.

Yet that may be the other strong force behind rising gas prices.

Refiners must also buy crude that is growing more expensive to make fuel. And prices are rising at a time when people are not driving like they used to. Trucking companies are not carrying as much freight because of the recession and airlines aren't buying as much jet fuel because business travel is down.

So refiners are shutting down operations or starting regular maintenance while sales are slow.

A government report last week showed that refiners have slashed production to levels more common in the aftermath of a hurricane, which can disrupt operations in the Gulf of Mexico.

San Antonio-based Valero Energy Corp. last month said it would idle two units at its Delaware City, Del., plant, cutting about 150 jobs, and Sunoco Inc. earlier this month said it would indefinitely idle its West Deptford, N.J., facility, which has about 400 full-time workers.

Demand is picking up slowly for fuel, but unless there is a big rebound, which few experts foresee, refiners are unlikely to ramp up production.

"The refining margins have been really pitiful, and as a result it doesn't really make sense to run at full capacities," Rozell said.

In other Nymex trading, heating oil rose less than a penny to $2.03 a gallon and gasoline for November delivery was essentially flat at $1.9775 a gallon. Natural gas for November delivery rose 11 cents to $4.89 per 1,000 cubic feet.

In London, Brent crude for December delivery fell 2 cents to $76.97 on the ICE Futures exchange., 10/19/2009