Higher Gasoline Prices Ahead

Wednesday, October 14, 2009

If you think that gasoline prices may peak around Memorial Day, you may be in for a big surprise.

Today, we were analyzing crude oil prices and noticed a disturbing difference in Spot Prices (Spot) and the actual price U.S. refiners pay for crude (Refiner's Acquisition Price or RAC). Over the period 2000-2007, the difference between RAC and Spot has averaged $3.85/B. However in the last year (April 2007-March 2008), the difference has increased to $9.32/B. Of more concern is the $23.45/B difference we have seen in the first quarter of 2008.

At some point the price refiners pay for crude oil has to catch up with market conditions. What this means to consumers is that we may see an additional 56 cents/gallon rise in prices over the summer. With average retail prices at $3.79/gallon (May 19, 2008), pump cost could reach $4.35/gallon.

Notes: Definitions from Energy Information Administration Glossary

<1> Refiner acquisition cost of crude oil: The cost of crude oil, including transportation and other fees paid by the refiner. The composite cost is the weighted average of domestic and imported crude oil costs.
<2> Spot price: The price for a one-time open market transaction for immediate delivery of a specific quantity of product at a specific location where the commodity is purchased "on the spot" at current market rates.

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