Gas Mythbusters for 2012
AAA evaluates some of the myths about gas prices floating around.
Myth [mith] = noun = “A traditional or legendary story, usually concerning some being or hero or event, with or without a determinable basis of fact or a natural explanation.” Well, you really don’t need a dictionary or thesaurus to know that they abound whenever the price of gasoline and diesel fuel spikes.
Myths, urban legends, old wives’ fables, and tall tales about the cost of gas are circulating with mad abandon. They range from the sublime to the ridiculous and from conspiracy theories to rumors of price gouging. They fly around in the ether and they run amok on the Internet and at the water cooler. “If there’s somethin’ strange, in your neighborhood...Who ya gonna call?” Gas Mythbusters, that’s who. All the histrionics, hysterics, hot air, hype, and all things hyperbolic can be downright confounding and confusing, cautions AAA Mid-Atlantic.
“The run-up in gas prices in 2012 is no exception, and consumers are desperate, they will try anything and do anything to try to save money, including falling for the latest rumors and myths,” said Jenny M. Robinson, AAA Mid-Atlantic’s Manager of Public and Government Affairs. “They range from 'it is more fuel-efficient to turn off the car's air conditioner (false),' to ' buying gasoline in the morning, when the air is cool, rather than in the heat of the day' will save you more (false), to keeping your tires properly inflated will enhance your fuel economy (true, by up to 3.3 percent ).”
Whether you believe “drilling more domestically is the fastest way to lower prices at the pump,” or “tapping into the Strategic Petroleum Reserve is the best means of reducing gas prices,” or changing the occupant of the Oval Office will cause gas prices to fall to $2.50 a gallon, always weigh the claim with a skeptic’s critical eye. If you hear anyone saying the latter, just whip out your myth-buster’s “dematerializer” myth-popper gun with its built-in “b.s. (ahem, hogwash and hokum) meter” and shout: “Oh yeah, if you can do it then, why you can’t do it now?”
As always, motorists should strive to separate fact from fiction, and the wheat from the chaff. For the benefit of motorists, AAA Mid-Atlantic is rounding up the usual suspects and debunking them.
Gas prices will hit $5 a gallon this summer. False. No way. No how. Unless Israel and the United States strike Iran’s nuclear facilities, and then that's the doomsday scenario. The saber-rattling aside, this is the proverbial Chicken Little “the-sky-is- falling,” psychological effect. Catch that acorn if it falls on your head at the gas kiosk and put your emotions and spending in check. Although pump prices have already spiked above four dollars in some retail markets in California, along the west coast and the east coast, and in Washington, D.C., most American consumers won't pay nearly that much for gas this spring and summer. AAA and OPIS gas guru, Tom Kloza, continue to believe U.S. gasoline gas prices will average $3.75-$4.25 per gallon this spring. On the other hand, the Energy Information Administration (EIA) now expects the “monthly average regular-grade gasoline retail price to peak in May at $3.96 per gallon, 32 cents per gallon higher than forecast in last month's STEO and 6 cents per gallon higher than May 2011.” If this holds true, prices will fall like the leaves of autumn - between 75 cents and a dollar per gallon - between the Fourth of July and Labor Day.
Pump Prices Will Continue To Rise Because of the forces of Supply And Demand. False. As always, consumers have a knee-jerk reaction to the high cost of gas, and they have a visceral disdain for such price spikes. As proof, consumer demand for motor fuels in the United States fell to a ten-year low in February, signaling “demand destruction” will continue. The ancient theory of supply and demand will reign supreme at the gas kiosk and that means “the greater the supply and the lower the demand, the lower the price will be.” Even so, 84 percent of Americans say they are already changing their driving habits or lifestyles because of the high cost of gas, according to a recent nationwide survey by AAA. Accordingly, gas demand is off 7.8 percent for the last four-week period, and total US oil demand is down 6.1 percent for the same time frame. If the trend line continues, sooner rather than later, pump prices will begin to fall in the absence of demand.
Gas station owners and operators are making a killing at the gas pump. False. Whenever gas prices soar, some consumers vent their anger and their spleen at the neighborhood filling station operator. They want to burn the grease monkey in effigy. It's misplaced rage. Average Joe Gas Station Owner makes more money selling snacks, sandwiches, and soda pop than he does selling a gallon of gas. As one service station manager recently told a reporter, “Where we used to make 14 or 15 cents, some of us are down to 4 or 5 cents a gallon right now.” Well, is that true? The markup on motor fuel sales averaged 18.5 cents per gallon in 2011. However, profit margins in 2011 typically were 3 cents to 5 cents per gallon (average breakeven on fuel sales is around 14 cents), explains the National Association of Convenience Stores (NACS). “Retailer profit margins over the past five years have averaged 15.4 cents per gallon” for the industry, which sells the bulk of gas in the USA.
Refinery closures on the East Coast will have little impact on what we pay for gas and diesel fuel this spring. False. It boils down to cause, effect and the wellhead. The retail price of gasoline is more expensive on the East Coast this year and one big reason for that is the shutdown of refineries in the region. It’s “Lord have mercy on us” if the Sunoco refinery in South Philadelphia closes in July. It’s the “big enchilada,” producing a fourth - 24 percent - of the refining capacity on the East Coast. Established in the 1860’s, it’s the “oldest continuously operating refinery in the world,” yet it’s operated by “the world’s least profitable owner of refineries,” reports Bloomberg.
During 2011, northeast refineries supplied more than a third – 38% - of the gasoline consumed in the Northeast gasoline market, and in-region refineries supplied nearly two-thirds - 61% - of the low sulfur diesel (ULSD) consumed on the East Coast, the EIA is reporting. Pennsylvania, Delaware, and New Jersey are “hot spots” for high gasoline prices so far this year, analysts say. Even Washington, D.C., Maryland and Virginia are seeing unnaturally high prices.
But will the trend last, and what’s behind it? Blame it on geography and the loss of production on these shores. Like falling dominoes, 18 refineries have been shuttered in the U. S., the Caribbean, and Europe during the past three years, taking more than two million barrels of oil out of production per day. We’ve lost two refineries that contribute about 360,000 b/d to middle Atlantic supply, and a once huge refinery in the Caribbean closed forever this month. Throw in the closures of a half dozen or so European refineries, and you have a recipe for a spike, albeit a brief one. Even more ominous for area motorists, five refineries supplying the east coast have ceased production.
During 2011, two refineries in Pennsylvania were idled and are still awaiting sale. They are: the ConocoPhillips refinery in Trainer (capacity: 185,000 barrels per day) and the Sunoco facility in Marcus Hook (capacity: 178,000 bbl/day). Going dark the year before, 2010, were the Sunoco refinery in Eagle Point, New Jersey (capacity: 145,000 bbl/day) and Western Refining in Yorktown, Virginia (capacity 66,300 bbl/day). The latest victim of the surcease is HOVENSA, a major refinery in St. Croix in the United States Virgin Islands, which boasted a 350,000-barrel-a-day capacity. All of this is exerting pressure on retail gasoline prices up and down the East Coast. But the contagion is not expected to spread across the USA, energy analysts forecast. The Department of Energy says: “While retail gasoline prices have generally followed the rise in crude oil prices, time will tell whether refinery closures in the Philadelphia area and other parts of the Atlantic Basin will have a further impact on prices.” The operative phrase is “time will tell.”
A Whole Lot Of Speculating Is Going On/Speculators are driving up gas prices. True. Gasoline prices have risen more than 50 cents a gallon since the beginning of the year. Once again, many people are pointing the finger of blame at a nebulous coterie of Wall Street investors and “noncommercial traders” at the NYMEX known as “speculators,” who continue to have an outsize impact on prices in the oil and gas markets. Back in July 2008, crude oil futures soared to a record high of $147 a barrel. Prices doubled from a low of $69 a barrel some three months earlier. Pump prices followed suit, and skyrocketed to all-time record highs of $4.11 a gallon nationally in July. A subsequent 60 Minutes investigation on CBS in 2009 revealed, “Approximately 60 to 70 percent of the oil contracts in the futures markets are now held by speculative entities.”
But are they blameworthy for the recent spike in gas? In February, the Commodity Futures Trading Commission’s (CFTC) Commitment of Traders report revealed: “There’s a ‘speculative premium’ of as much as $23.39 a barrel in the price of NYMEX crude oil.” That translates into “a 56 cent a gallon increase at the pump,” as CFTC Commissioner Bart Chilton recently explained. Even so, “‘managed money’ held net positions in NYMEX crude oil contracts equivalent to 233.9 million barrels.” The next time you pull up to the pump you do the math.
The USA imports more oil than its exports. False. On an annual basis, the country exported more crude products during 2011 than it imported. That’s the first time it’s happened in six decades, since 1949, to be exact. That's according to the February “Petroleum Supply Monthly” from the Energy Information Administration (EIA). The agency explains: “The increase in foreign purchases of distillate fuel contributed the most to the United States becoming a net exporter of petroleum products.” U.S. gasoline and diesel exports to Brazil jumped 29.27% last year, the EIA reports, and they are expected to double this year, says OPIS. It's further proof of the role reversal of the U.S. as a net exporter for petroleum products.
OPEC has the United States over a barrel, of oil, that is. False. While Saudi Arabia is the second largest supplier of crude oil to the United States, nearly half – 49 percent - of U.S. crude oil and petroleum products imports came from the Western Hemisphere, primarily Canada (number one), Mexico (number three), Venezuela (number four), rounding out fifth place was Nigeria, and then Columbia. That was the case in 2010 and in September of 2011, according to the EIA. Even so, only about "18% of our imports of crude oil and petroleum products come from the Persian Gulf countries of Bahrain, Iraq, Kuwait, Qatar, Saudi Arabia, and United Arab Emirates," the agency explains.
Most consumers purchase name-brand gasoline. False. Instead of going green, more motorists are going generic, for gas, that is. Gas-brand loyalty is a thing of the past, and we are shopping for gas with our steering wheel, due to the high cost of fuel, and opting for unbranded (generic) gas. As a result, a market inversion is taking place, with more consumers flocking to no-name, no-tell gas kiosks. Here’s why. “Branded product often carries a premium to unbranded product,” says OPIS, “since it can be sold under a branded ‘flag.’” Even so, branded gasoline can be sold as unbranded product, but the reverse is not true. Eighty percent of the gasoline purchased in this country in 2010 was sold by the convenience store industry, not by retail filling stations. That year convenience stores rung up $385 billion in motor fuel sales on their cash registers. In fact, during 2010, “the average convenience store posted $3.98 million in motor fuels sales and sold 123,449 gallons per month,” according to the National Association of Convenience Stores (NACS). Don’t get branded or burned at the pump, and chances are, your car can’t tell the difference.
Old habits die hard, but I can save gas money if I change the way I drive. True. One of the easiest and most effective ways to conserve fuel is to change driving styles. Instead of making quick starts and sudden stops, go easy on the gas and brake pedals. If there is a red light ahead, ease off the gas and coast up to it rather than waiting until the last second to brake. Once the light turns green, gently accelerate rather than making a quick start. The U.S. Department of Energy reports aggressive driving can lower a car’s fuel economy by up to 33 percent.