Interesting Article on Why the gas price spike WON'T go up!

Happy motoring!

After a 30 per cent increase in pump prices since this time last year, gas prices are set to drop as much as 18 per cent, starting as early as this week.

Prices shot up for several reasons, with crude oil reaching a two-year high last week.

The “Arab Spring” has given commodity traders the jitters. Among the regime-change nations in North Africa and the Middle East, only Libya is an oil producer, and even it accounts for just 3 per cent of global supply.

The worry is that regional unrest could threaten regimes in major producers like Saudi Arabia and Kuwait. Yet that’s an unlikely prospect given Western support of those regimes.

True, speculators pushed crude to a two-year high of $114.63 (U.S.) last week. But on Friday, crude tumbled by $17 — the biggest drop since December 2008. A reality check reminded traders that the U.S. and European economic recoveries are stalled, depressing demand for transportation and heating fuels.

Another of the upward drivers in price has been a Mississippi River overflowing its banks. There are no fewer than 11 refineries between New Orleans and Baton Rouge, La., accounting for 13 per cent of total U.S. refinery output.

The prospect of those refineries being flooded bumped gasoline futures up 2.3 per cent last week. Yet while that natural disaster hasn’t passed, energy analysts are confident that U.S. refining capacity is generally in good shape.

“Gasoline is up because of the potential for the Mississippi to flood refineries,” energy market analyst Addison Armstrong at Tradition Energy in Stamford, Conn., told Bloomberg News.

“This reminds me of when prices rise ahead of a hurricane because of the potential damage. Prices often sell off strongly after the storm passes with minimal damage.”

Another price-dampening factor is the decision early this week of CME Group Inc., operator of the world’s largest commodities exchange, to increase margin requirements for traders in petroleum futures by 22 to 25 per cent.

Those hefty increases in the sums that traders are required to hold as collateral for their trades have been a powerful brake on speculation.

They forced crude prices down 2.4 per cent in early trading Tuesday.

Spring traditionally is the season of peak gas prices. Typically in summer prices slump. Most analysts forecast a drop in pump prices to between $1.14 and $1.23 per litre as early as June.

I’ve never seen a pump-price spike that wasn’t accompanied by widespread accusations of price gouging by oil companies and gas-station owners. This week has been no exception. Dan McTeague, the former Liberal MP defeated on May 2, now a consumer advocate on gas prices, asserts that “the price of gas can be whatever a handful of players in Canada want it to be.”

No question, station owners never cut prices in tandem with drops in crude prices. They charge what the market will bear regardless of what they paid for the gas in their underground storage tanks.

This time, station owners across North America are still recovering from high costs passed on to them by their oil-company suppliers when crude was priced far higher than today. So they won’t be in a rush to drop the posted prices until their rivals do.

As it happens, U.S. crude stockpiles are just 1 per cent shy of record levels. At the same time, though, inventories of refined crude — including gasoline — have slipped 750,000 barrels from about 204.5 million barrels in the latest reporting period. So McTeague is correct that there’s “plenty of crude” and that “crude isn’t behind the price rise.”

But, then, neither is price gouging, unless antitrust regulators are asleep on both sides of the border. Given the political gains to be had from cracking down on Big Oil, it’s likely, as countless times before, that gouging isn’t an issue. The laws of supply and demand are.

And demand is easier to accommodate in some places than others, accounting for U.S. pump prices now ranging from 89 cents a litre in Wyoming to $1.59 in Hawaii. In Canada, the spread runs from $1.44 per litre in Toronto and Montreal to $1.21 in Calgary and $1.29 in Ottawa.

Higher prices are a direct hit to disposable income, no question. Still, gasoline remains one of the cheapest of commonplace liquids, including shampoo ($6.76 per litre), a glass of Guinness ($16.90) and nail polish ($270.54 per litre).

Next time you’re grimacing at the cost while filling up or scoring a thimbleful of Hermès fragrance for your sweetie, note that Staples carries just about the most expensive liquid on Earth.

That would be printer ink, priced at $1,692 a litre. There’s no time like the present to reset your printer to “barely legible.”

http://www.moneyville.ca/article/989193--olive-why-this-gas-spike-w...