Petersburg Pilot -

Fuel economy: why prices at the pump remain high despite falling oil prices

 

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Prices at the pump in town still top $4, about a dollar more than the statewide average of $3.07 per gallon and approaching $2 higher than the national average of $2.27 per gallon, according to AAA daily fuel gauge report.

Locally falling oil prices and fewer State funds have arisen alongside every budget discussion, especially as local officials wait to see if any State monies will be allocated for capital projects. Though falling oil prices are a detriment to the State's financial affairs, they also translate to lower prices at the pump, an effect being felt more nationwide than in Southeast.

"Recent retail prices have been trending downward due to high domestic inventory levels of crude oil coupled with soft demand," said Ken Bobbie, marketing director for Shoreside Petroleum Inc. in Anchorage, affiliated with Petro Marine. "These economic factors and dynamics affect southeast Alaska in the same manner as they do any other area of the country."

The difference, Bobbie said, is that in Southeast fluctuations in prices at the pump are less dynamic due to the supply model.

"In the 48 contiguous states fuel is lifted and delivered daily from racks whose prices can vary from day to day based on movements in the price of crude oil," Bobbie said. Whereas in Petersburg and other locations in Southeast, "our inventory is barge delivered, stored in tanks, and depleted over the course of weeks, until it is replenished either at a higher or lower cost," Bobbie said. That cost is based on the value of the current inventory.

Bobbie said the resulting lag in price changes favors drivers refueling when crude oil prices are rising, but not under the current scenario when they are falling.

This partially explains why the national average for fuel per gallon is $2.27 while the state average is $3.07, according to the daily fuel gauge report from AAA.

Within the state, however, there is a disparity in prices at the pump as well. AAA tracks the average gas prices of Alaska metro areas revealing that Anchorage residents are paying the lowest price per gallon, $2.91 of all metro areas. Fairbanks drivers are currently playing $3.22 per gallon while Juneau drivers are paying yet more, some $3.66 per gallon. Moving southward into Petersburg, prices at the pump are higher still, with Tuesday's price per gallon at $4.08.

Bobbie said there are four factors affecting the price of gas, with the cost of crude oil accounting for the bulk, some 68 percent. Refining costs account for 11 percent, distribution and marketing costs account for 9 percent and the cost of taxes account for the remaining 12 percent.

Fuel being sold in Southeast is currently coming from refineries in the Pacific Northwest, where the cost for transport is cheaper than from Alaska's one remaining refinery, Tesoro Nikiski Refinery, yielding more favorable prices at the pump.

Bobbie said that it's difficult to know how long the downward trend will last or how low fuel prices will go.

"Where they're heading is anybody's guess. Crude oil is a global commodity and commodity prices are extremely difficult to predict," he said. "Opinions vary, but most suggest we are at the bottom of a decline in crude oil prices and are forecasting a slight increase after the bottom is hit, followed by relative price stability in the

near term."

 

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