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<H1 class=storyheadline>Why gasoline prices are rising while oil isn't</H1>
<H2 class=storysubhead>With crude prices down 25 percent from last summer,
prices at the pump should be lower. Right?</H2>
<DIV class=storybyline>By Jeff Cox, CNNMoney.com contributing writer</DIV>
<DIV class=storytimestamp>May 17 2007: 4:32 PM EDT</DIV>
<DIV class=storytext>
<P>NEW YORK (CNNMoney.com) -- Last summer when oil traded at a record high near
$79 a barrel, gas at the pump went for about $3.03 a gallon. Today, crude's
about $65 a barrel and a gallon of regular unleaded costs $3.10</P>
<P>Doesn't seem right, does it? The price of a barrel of crude ought to be a
better benchmark for what you pay at the gas pump.</P>
<P>In today's economy, though, that type of formula is out the window, a relic
from the days when refineries kept crude stocks high during winter months and
Americans didn't drive longer and longer distances to get to home, work and
play.</P>
<P>Nowadays, pump prices are determined far more by supply and demand for
gasoline than by how much traders buy and sell crude for on the open market.</P>
<P>"Forget everything you ever learned or ever read about the connection of
crude oil prices to gasoline, because there is a disconnect today," said
petroleum industry consultant Tim Hamilton. "All the price of oil does is
establish a floor of what the price is going to be in the country."</P>
<P>Hamilton, who works with Oilwatch.org, a consumer group based in Santa
Monica, Calif., advised that instead we should pay attention to the supply of
gasoline for delivery to the marketplace, as well as the consumer habits that
determine price.</P>
<P>"What's going to tell you the maximum price is going to be the supply of
refined product," he said. "Supply of the finished product is short and the
price is going up accordingly, and it's all profit for the refineries."</P>
<P>Over the last three months, gasoline stockpiles got drained more quickly than
at any time in the history of record-keeping by the Energy Information
Administration, the government's top energy forecaster. Couple that with
continued high demand, which the EIA said rose about 1.0 percent from last year
over that period, and that weighs heavily on the price of gas.</P>
<P>Other factors are at work. Geopolitical tensions, like the war in Iraq,
political unrest in Nigeria and last year's nuclear tension in North Korea, also
factor in. And this year's cold April caused a spike in demand, particularly in
the Northeast, while seasonal changeover at refineries to meet reformulation
requirements play a role as well.</P>
<P>The industry also has been hampered somewhat by a spate of outages at
refineries, which are running at just 89.5 percent of capacity, rather than the
90-plus typical for this time of year. Finally, the main grade of U.S. crude,
West Texas Intermediate, is trading below most other grades of oil worldwide,
meaning U.S. refiners are effectively paying more on average for crude oil.
<B></B></P>
<P>In fact, some analysts see nothing particularly unusual about this year's
spike in gasoline prices, at least in terms of recent trends, and expect prices
to ease somewhat.</P>
<P>"Indeed, if you check a chart of past oil prices you'll see that last year
the peak was around this time and prices fell later in the year," said Peter
Grossman, an analyst at Butler University. "We should expect to see prices fall
toward the end of summer. The futures market certainly expects it. Gasoline
futures prices are falling even as pump prices rise."</P>
<P>Don't expect a steep fall, though. The EIA, whose previous per-gallon
estimates have been shattered by continuously increasing prices, said in its
latest report Wednesday afternoon that demand should keep prices around $3
through the summer.</P>
<P>In any event, if gas prices tumbled suddenly, that could spark a rush of
buying that would force prices back up again - or at least put a floor under
them.</P>
<P>Besides, judging by current demand levels, the driving public doesn't seem
bothered enough to cut back much or even park their vehicles altogether. And
it's that demand, after all, that goes a long way in determining which way
prices will go.</P>
<P>"Once we got through a threshold high like last year and broke that
$3-a-gallon barrier, the public gets accustomed to it and they go back to buying
as normal," Hamilton said. "If it goes to $3.50 will they slow down? We don't
know." <A
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