Predicting gas prices like ‘rolling the dice’

By Thomas V. Bona

BusinessRockford.com

A year ago, the average price for a gallon of regular unleaded gas in Rockford was $2.25.

Then it crept up to $2.60 in March, $2.87 in April and a record $3.46 in May. Diesel prices also rose steadily.

Could prices spike again this spring?

The short answer: No one knows.

“Anybody who tries to predict it is rolling the dice,” said Bill Fleischli, vice president of the Illinois Petroleum Marketers Association/Illinois Association of Convenience Stores.

He’s seen reports from the U.S. Department of Energy and the Oil Price Information Service that say tight supply and increased demand could shoot prices to an unheard-of $3.40 to $3.60 a gallon nationally. Illinois could go up even more.

But at the same time, talk of a recession could cause motorists to curtail recreational driving and businesses to make fewer deliveries and sales calls. Geoff Sundstrom, a national spokesman for AAA, told Reuters recently that if drivers conserve dramatically, prices could drop as much as 50 cents a gallon.

That’s a big “if.”

“We were seeing lower demand than typical for January, but we also saw those $100-a-barrel oil prices in January. I’m not sure it was a general trend or just a reaction to that,” said Nicole Niemi, spokeswoman for AAA Chicago.

“We’ve never had $3 gasoline prices in January and February, but typically in the spring, prices do go up, demand goes up. People don’t typically conserve in the spring.”

The roller coaster of gas prices is driven by crude oil. The cost of crude makes up two-thirds of the price of gas, according to the U.S. Energy Information Administration.

A year ago, it was only half the cost.

“Some analysts have suggested that we’re seeing the summer spike now because crude is high now,” said David Sykuta, executive director of the Illinois Petroleum Council. “I don’t see too many analysts suggesting that we’ll go from $90 to $145 (a barrel) this year. We may be cushioned.”

But a variety of factors affect crude prices: international tensions (including sparring between Venezuelan President Hugo Chavez and the U.S.), increased demand from China and India, and infrastructure problems that disrupt supply.

Sykuta expects that if the economy worsens, some domestic demand will decrease, but it will be more than made up for by demand in Asia.

“We’re just talking about a decrease in the increase” of fuel prices, he said. “It’s not a net decrease.”

Retailers don’t know what to expect either, other than that they’ll be the ones to get flak if prices shoot up. But the U.S. Energy Information Administration says distribution and marketing costs make up 8 percent to 10 percent of gas costs. That percentage used to be higher.

“We’re not unlike the customer, we don’t know from day to day what we’re going to be paying for a gallon of gas and what the basis of the change of that price will be, whether it’s a conflict in the Middle East, whether it’s a problem with a pipeline,” said Chip Williams, a principal owner of Vista Marketing Group, which operates or supplies five local Shell stations. “It’s anybody’s guess what tomorrow will bring.”

Ali Sahori, who owns Way Low, an independent Citgo station on West State Street, said he’s seen a slight decrease in demand, but he doesn’t think it’ll last.

“Ninety percent of the people, if they have to go somewhere, they’ll go,” he said. “If I’m going to go somewhere, if the price is $2.50 or $3, I’m not going to think much of it.”

But Karla Tyska of Rockford will be thinking about it. She commutes 38 miles each way to her job in McHenry County.

“I still have to drive to work,” she said. “I just won’t do any recreational driving. My sister lives in Janesville, so I probably won’t be visiting her as much as normal. I won’t be going all over anymore.”

She budgets for gasoline first, then cuts other expenditures to make up for increases. She’s not planning for a big spike, but should it come, she’ll cut elsewhere.

Trucking companies continue to raise fuel surcharges to offset the higher costs.

A&B Freight Line in Rockford has increased its surcharges to 22 percent and 24 percent, depending on the size of the load. A year ago, the surcharges were in the
single digits.

“The shippers are all over us about charging too much, so we’ve got to be careful there,” said Bruce Shelton, manager of A&B’s marketing and traffic.

The trucking industry is so competitive, he said, that some companies are trying to draw business with artificially low prices. He worries that high diesel prices will cause further consolidation in the industry and make it harder for independent companies like his to compete.

“We really do not look for diesel prices to go down any. Once the oil companies get it the way they want it, they’ll ride that out for a while.”

Staff writer Thomas V. Bona may be contacted at 815-987-1343 or tbona@rrstar.com.