Local spike in gas prices comes early in season

2/24/2012
BY DAVID PATCH
BLADE STAFF WRITER
Motorists refuel at the Kroger station at the corner of Glendale and Byrne in South Toledo. Gas prices have risen steadily since December, a month where consumers usually have a respite from price increases.
Motorists refuel at the Kroger station at the corner of Glendale and Byrne in South Toledo. Gas prices have risen steadily since December, a month where consumers usually have a respite from price increases.

Gasoline prices that have shot up by nearly 50 cents per gallon across the Toledo area in the past week haven't set any records -- yet.

But the two retail price spikes that have hit the area since Saturday have Mike Evans worried.

"It's early in the year," said Mr. Evans, executive vice president for business development at Atlas Oil, a Detroit-based gasoline wholesaler and retailer with more than a dozen filling stations in metro Toledo. "We're not in the high-demand part of the year yet. You don't want to be going into spring this high."

Indeed, the new price levels, in the high $3.60s per gallon for self-service regular, that appeared late Wednesday into early Thursday around Toledo shouldn't be too unfamiliar to area motorists: Prices were this high, and for a while even higher, last spring and summer.

But prices have never been higher in February, and for consumers, that presents an ominous outlook for springtime, when prices historically have risen in Toledo -- and everywhere else -- as refiners switch to costlier summer fuel formulas and driver demand ramps up for vacation travel.

"If things in the market don't correct, we could see some very high-level prices this summer," Mr. Evans said.

Find the lowest gas prices in Toledo at toledoblade.com/gas

While he declined to make specific predictions, analysts elsewhere have said a national average price of $4.25 per gallon is likely.

If Toledo prices were to reach that high, it would be a record.

Alex Edwards of Sylvania was a little taken aback when he went to fill up his tank at the Shell station at Monroe Street and Michigan Avenue downtown on Thursday night.

"It was $3.05 here a week ago, wasn't it?" he asked.

"I'm trying to drive as little as possible, I guess," Mr. Edwards said.

He also was trying to buy as little as possible -- in this case $10 worth, in the hopes that prices will go down soon.

Mr. Evans and Scott Dean, a spokesman for BP Oil in Chicago, said retail gasoline prices are driven primarily by one factor: the price of crude oil.

Oil prices in both New York and London hit nine-month highs in global commodities trading Thursday -- $107.83 per barrel on the New York Mercantile Exchange, $123.62 per barrel for Brent crude in London -- to continue a recent run-up blamed primarily on fears of a supply shortage that Iran could trigger as it spars with the United States over its nuclear program.

Iran, the world's third-biggest oil exporter, has cut off shipments to the United Kingdom and France, and it may halt exports to other European countries.

Iran also has threatened to close the Strait of Hormuz, a crucial waterway in the Persian Gulf through which one-sixth of the world's seaborne exports flow every day.

Experts doubt Iran will try to dramatically cut shipments, given its dependence on oil sales. About half of the country's revenue comes from crude. But many investors are snapping up oil contracts in case tensions escalate further.

"World politics are closer than sometimes we realize" in the Midwest, Mr. Dean said.

Prices in the high $3.60s per gallon for self-service regular so far isn't a record.
Prices in the high $3.60s per gallon for self-service regular so far isn't a record.

The recent price spike, he said, "is one of the most easily seen examples of how global supply and demand works."

At $100 per barrel, crude oil supply represents about $2.40 per gallon for refined gasoline. Crude oil and taxes account for about 84 percent of gasoline's retail price, Mr. Dean said.

In Ohio, state and federal motor fuel taxes add 46.4 cents per gallon to gasoline, while in Michigan, the 6 percent state sales tax is collected as well as the 19 cents-per-gallon state and 18.4 cents-per-gallon federal fuel taxes.

The Thursday Nymex closing crude-oil price was the highest since May 4, when retail gasoline was just reaching its 2011 peak in Toledo: an average of about $4.16 per gallon, according to the Web site toledogasprices.com, which relies on volunteer spotters.

On Thursday, the national average price for regular was $3.61 per gallon, according to AAA, Wright Express, and Oil Price Information Service. The per-gallon price has already topped $4 in California, Alaska, and Hawaii, and is nearly $3.90 in New York and Connecticut.

Mr. Evans said there had been two days in the past week when the Detroit wholesale price, which Toledo closely tracks, jumped by 14 cents per gallon.

"We're seeing a huge increase in the wholesale price," he said. "It doesn't seem to be running out of steam -- it's up again today [Thursday]."

Mr. Dean, meanwhile, said that some of the near-$3 retail prices that could be found around Toledo as recently as Saturday morning were the result of heated street-corner competition.

Prices below $3.10 per gallon at some outlets quickly vanished Saturday when other filling stations -- known in the industry as price leaders -- boosted their price to $3.499 per gallon in response to wholesale increases.

The retailer "needs to price his fuel based on what he paid for the fuel already in his tanks, but also anticipating what it's going to cost him to buy his next cargo," Mr. Dean said.

Intense local competition, he said, becomes "a game of chicken," in which filling stations compete penny by penny for each other's customers until prices become unsustainably low, he added.

Information from The Blade's news services was used in this report.

Contact David Patch at: dpatch@theblade.com or 419-724-6094.