The Car and Truck Fleet and Leasing Management Magazine

Higher Gasoline Pump Prices on the Horizon

August 16, 2005

WASHINGTON, D.C. — U.S. drivers — who are already paying the highest retail gasoline prices on record — should expect further gasoline price increases due to skyrocketing costs for crude oil and a flurry of recent refinery problems, according to several sources, including AAA, and the federal Energy Information Administration (EIA), and Reuters. Prices at the pumps are already at a record near $2.40 a gallon on average, up more than a dime from last month, according to a AAA daily survey of 60,000 stations. But a recent surge in the cost of crude oil to $66 a barrel and problems at the nation’s refineries will cause further steep increases in fuel prices. Around 10 U.S. refineries have reported unplanned unit shutdowns since mid-July. Refineries typi-cally become more prone to outages in late-summer as they try to keep up with strong demand. While U.S. retail gasoline prices are at a record in nominal terms, when adjusted for inflation they remain below the peak of around $3 a gallon in the early 1980s. The EIA said that retail gasoline prices will average above $2.10 a gallon on a monthly basis through 2006, while truckers will face average diesel fuel costs over $2.20. Its forecast is based on the price for U.S. crude oil staying above $55 a barrel during the same period. The price for crude, which has recently hit another record high of over $64, accounts for about half the cost of making gasoline and diesel fuel. Over the next few weeks, the EIA said a recent 21-cent rise in gasoline spot prices will be passed on to consumers at the retail level. So far, only about 8 cents of that increase has made it into the pump price. The agency said that after the Labor Day holiday in early September, gasoline prices often decline as fuel demand drops when people go back to work and school. However, the EIA warned that with a government forecast of an active hurricane season this year, gasoline prices “could continue to surge” beyond Labor Day if a major storm disrupts supplies in the Gulf of Mexico or more oil refinery outages occur. As rising fuel demand strains U.S. refinery capacity and concerns about supplies in the Middle East, crude oil prices have risen to record levels. No new refineries have been built in the U.S. in almost 30 years, and domestic refineries have operated at more than 90 percent of capacity since March to meet demand for transport fuels and boost supplies of heating oil before the fourth-quarter consumption spike. Refining capacity is now in question. ExxonMobil shut its Joliet, Ill., refinery July 30 because of a water-cooling system failure. BP closed a unit at its Texas City, Texas, refinery July 31 for maintenance. The plant also suffered an explosion and fire last month, the second since March. Valero has suggested it may reduce fuel output due to the Congress’s failure to include a liability provision regarding fuel additive MTBE in the recent energy bill.
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