Speculation, weak dollar drive up prices at the gas pump

Gas prices seem to be creeping up again. What gives? Here's a primer on what affects how much you pay at the pump. Steven Cole Smith, Orlando Sentinel

Q: Is it my imagination, or am I paying much more for gas than I did a month ago?

It isn't your imagination. On Tuesday, the average for a gallon of regular in Florida was $2.70. A month ago, it was 27 cents cheaper at $2.43. If your car or truck runs on diesel, you've taken a hit too, from $2.60 a gallon a month ago, to $2.85.

Q: Why is that?

One reason is the weak dollar, said Gregg Laskoski, public- and government-relations manager for AAA South in Tampa. "It isn't supply and demand that is driving the price," he said. "For most of the summer, crude (oil) was trading in a pretty narrow price range, in the $60- to $70-a-barrel range. All of a sudden in October — and this is really due to the dollar losing ground to the euro and other currencies — crude started this week above $80 a barrel." On Tuesday, it was $79.

Q: What else is causing this?

The runup in crude came at least in part from speculative investors in the commodities market, Laskoski said. That happens anytime the dollar is weak. And it isn't just oil — most everything in the commodities market increases when the dollar is weak.

Q: And that's all there is to it?

Pretty much. Tancred Lidderdale, forecaster for the Energy Information Administration in Washington, said some "snippets of positive economic news" caused some speculators to buy up oil futures, much as they did when we saw $4-a-gallon gas. But the circumstances are less extreme now, so there is no $4-a-gallon gas in the foreseeable future, he said.

Q: So, as we approach the holidays, what sort of prices can we expect?

"I think most of the oil analysts believe that the price of crude will come down sometime during the next few weeks, and it appears it may already be starting that decline," Laskoski said. "But it's too early right now to say that this is a trend."

Tom Kloza, forecaster for the Oil Price Information Service in Maryland, said he suspected it would take at most a couple of months before investors begin to peel back much of the $15- to $25-a-barrel "hope premium" currently built into crude prices.

Q: When crude oil goes up, how much does that affect pump prices?

A rough rule of thumb, said Lidderdale, is that every $1 increase in the cost of a barrel of crude oil causes a 2.4-cent-a-gallon rise in gasoline or diesel. Conversely, a drop of a dollar should cause a 2.4-cent reduction in price of a gallon of gas.

Q: But isn't there a lag time between the price of crude going up and down, and us seeing the difference at the pump?

Lidderdale said it usually takes one to two weeks before changes in the price of crude are reflected at your local gas station. But prices never seem to fall as quickly as they go up, a perception that everyone recognizes and nobody can seem to explain.

Q: So what can I do to minimize what I pay at the pump?

Use the octane requirement the manufacturer recommends. If your owner's manual says 87 octane, you won't get better performance paying more for 89 octane. Combine trips. Shop around for good prices — wholesale clubs such as BJ's, Costco and Sam's Club typically have some of the lowest prices in town.

Q: Do I need name-brand gas?

Some say you might, especially for turbocharged and supercharged engines. But, basically, gas is gas, with the difference being the additive package an individual brand uses in its fuel. Again, if the manufacturer says your car should run properly on regular gas, and it doesn't, you likely have a mechanical problem.

Speculation, weak dollar drive up prices at the gas pump 11/12/09 [Last modified: Thursday, November 12, 2009 3:30am]

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