Experts cite profit margins, hurricanes among reasons for stubbornly high fuel
By Joshua Boak | Chicago Tribune reporter
Drivers, start your griping.
Crude oil costs less than it did a year ago — about $75 a barrel on Wednesday — but gasoline in Chicago costs 21 percent more.
Since gas prices shot up as oil sped to a record $147 a barrel this summer, you might wonder why prices have yet to experience an equally dramatic fall as oil has retreated amid economic woes.
Average gas prices in the Chicago area were $3.48 a gallon Wednesday, according to the AAA. For those still fixated on the $4.34-a-gallon peak in July, that might appear to be a welcome change, unless you consider that gasoline was $2.89 a year ago when oil was above $75 a barrel.
There are several reasons to explain why gas prices are stubbornly high, not all of them reassuring.
Experts say gas prices climb like a rocket and slowly float downward like a feather because the industry can bolster its profit margins when oil costs less. Compounding this phenomenon was the recent shutdown of refineries in the Gulf of Mexico as Hurricanes Ike and Gustav struck, which squeezed gas supplies.
"The prices of oil and gas aren't always in tandem," said AAA-Chicago spokeswoman Nicole Niemi. "What we're seeing are ramifications of the hurricanes earlier this year. There were shortages and distribution problems and we're still catching up from that."
Experts also note that gasoline prices might not fall as much as they should because they never rose as high as they could have.
Over the past decade, oil prices increased fourteenfold, according to government statistics. By contrast, gasoline prices merely tripled.
"When we hit the highs in crude, the refiners weren't able to pass on all the costs," said Phil Flynn, an analyst for Alaron Trading Corp. "I've done estimates showing that gasoline should have been 25 percent higher when crude oil was at its peak."
Nor is the gasoline market as straightforward as it once was because retailers can lock in wholesale gasoline at a variety of prices. Across Chicago on Wednesday, gasoline ranged from $3.29 to $4.15 a gallon, according to MapQuest. One reason for this is that stores such as Wal-Mart now sell gas, whereas this was once the exclusive domain of local service stations, said David Sykuta, executive director of the Illinois Petroleum Council.
"There's no doubt about it, prices are much more volatile than they used to be," Sykuta said. "And it's going to stay that way because you have all these different players with different prices to meet."
Outside Illinois the discrepancy grows even wider because of the higher taxes charged in the Land of Lincoln. Of the $3.48-a-gallon average price in Chicago, 73 cents went to federal, state, county and city taxes. The national average is roughly 62 cents a gallon, according to GasBuddy.com.
In light of the high gas prices, the Illinois attorney general's office is reviewing more than 500 complaints of gouging, but it has the legal authority to investigate the complaints only in the event of a natural disaster.
Customers at a Citgo station downtown continue to behave as though gasoline prices are on the verge of reaching a new peak.
"Everything has changed," said Tricia Hoover, who commutes from Hoffman Estates.
Hoover said she makes fewer visits to see her parents, who live downstate. She began to also ride the train and bus more, although public transit has grown more crowded because of gas prices and she values having personal space.
Food deliveryman Manuel Carpio nabs the first parking spot he can find instead of circling the block in his station wagon to find the closest one.
Here's the potential good news for drivers: Oil prices have plummeted because the weak economy is sapping demand. On Wednesday, oil futures dropped $4.09, or 5.2 percent, to $74.54 a barrel. Analyst Steve Schork said that oil could soon reach $50 a barrel. There's bad news there, too, of course: Who can afford to drive in a recession?
