http://www.desmoinesregister.com/article/20110527/BUSINESS/105270339/Gas-in-Iowa-costs-1-more-per-gallon-than-last-year-Who-s-to-blame-?odyssey=tab%7Ctopnews%7Ctext%7CFrontpage
10:13 PM, May. 26, 2011 |
Written by DAN PILLER
The price impact?
Gasoline costs amount to no more than about 5 percent of a typical family’s spending, well below food (13 percent) and shelter (40 percent). So economists believe that the impact of higher gas prices tends to be at the margins, such as holiday driving and attendance at special events.
The auto club AAA reports that 30.9 million Americans are expected to travel more than 50 miles by car this weekend, a slight decline from the 31 million a year ago.
The AAA survey said that of those who will travel, six of 10 said rising gas prices won’t affect their plans. Of the remaining four out of 10, 70 percent said they’ll simply economize other areas of their travel budget, according to AAA.
Airfares, hotel rates and car rental rates are also up along with gas prices. The number of travelers flying this weekend is expected to be up about 11.5 percent from last year’s 2.63 million. Memorial Day weekend airfares are projected to be about 14 percent more expensive than last year.
Recreational vehicle and camper owners haven’t been deterred by the higher gas prices.
“We have good reservations for Memorial Day weekend and, frankly, we expect the higher gas prices to help us because many of our members live within 50 miles,” said Nocona Mollendor, manager of Cutty’s Des Moines Camping Club Inc.
“What we’ve seen is that when gas prices rise, people take shorter trips, but they still travel,” she said.
Rich Teeters, retired from a trucking job for the city of Phoenix, Ariz., and his wife, Jean, brought their fifth-wheeler pulled by a pickup to Cutty’s this week. As he readied his vehicle for the next leg of his journey, to Wisconsin, Teeters said “some people adjust by traveling fewer miles or maybe staying longer at a campground.”
Teeters has hedged his spending on energy. He uses diesel fuel, which has become more expensive than gasoline in the dozen years since he became a near year-round traveler. But he also owns stock in Exxon Mobil, the energy giant.
“I couldn’t do this if I didn’t invest well,” said Teeters.
Another campground visitor from the Sun Belt, Ed Mutney, stayed at Cutty’s this week midway through a trip from his home in Silver Spring, Fla., to Alaska.
“I’m going to meet some friends on I-80 and we’ll caravan the rest of the way,” said Mutney, retired from the U.S. Air Force.
“It got a little scary when the price of gasoline got to $4 a few weeks ago, but it has slipped back,” Mutney said.
– Dan Piller
Lance Bauer of Winterset, who works for Keck Energy, fills an underground storage tank with unleaded gasoline in Des Moines on Thursday morning. / RODNEY WHITE/THE REGISTER
Ashley Brown of Des Moines has welcomed the recent drop in gas prices. “I am staying home over the holiday but it is still nice to know I can leave if I want to and that $10 will get me around town,” she said. / ANDREA MELENDEZ/THE REGISTER
How much more it costs to go to …
The difference in the cost of a round-trip drive to each location on Memorial Day weekend 2010 and 2011 in a 25-mpg vehicle:
KANSAS CITY
2010: $40.81
2011: $56.21
MINNEAPOLIS
2010: $51.67
2011: $71.17
CHICAGO
2010: $70.75
2011: $95.45
Gasoline that costs $1 per gallon more than it did last Memorial Day will cause Iowans to wonder who is to blame as they fill up for the holiday weekend.
The never-ending gas price morality play has produced a new villain, the Wall Street speculator, who is succeeding Texas oilmen and OPEC ministers as the bad guy at the gas pump.
“There won’t be another drop in the price of gasoline this weekend, and it’s due to Goldman Sachs and Morgan Stanley,” said Mark Meyer, president of Keck Energy in Des Moines. On Tuesday, Goldman Sachs and Morgan Stanley, both major investors in crude oil markets, had issued forecasts of higher crude oil prices this summer.
Gas prices map: Find the best fuel deals in Iowa and around the country.
The price of oil promptly rose by more than $1 per barrel in the next two trading days on exchanges.
“What a crazy system we have,” he said. “People resist paying an extra 5 cents per gallon in gas tax to fix the highways, but we allow speculators to raise the price of gasoline by 50 cents a gallon.”
As crude oil and gasoline prices have risen 25 percent since Jan. 1, more charges of market manipulation are flying.
U.S. regulators on Tuesday launched one of the biggest-ever crackdowns on oil price manipulation, accusing traders and companies of artificially driving up crude oil prices in 2008.
Also this month, Rex Tillerson, chairman of Exxon Mobil, told a congressional committee that supplies of crude oil and refined gasoline were adequate and that the supply-and-demand price of crude probably should be around $70 per barrel.
Crude oil traded at $99 per barrel on the day of Tillerson’s comments.
But Big Oil isn’t among those calling for trading limits or other crackdowns on the crude oil markets. John Felmy, chief economist for the American Petroleum Institute, told The Des Moines Register in an interview this week: “Oil prices have risen for basic supply and demand reasons. Worldwide demand for oil, particularly from China and India, is up while production is flat.”
Felmy argues that all commodity markets, including crude oil, need speculators “to provide the liquidity that any functioning market requires” to attract investors.
Nevertheless, commodities watchers point blame toward Wall Street.
Stephen Schork of Villanova, Pa., a former oil trader on the New York Mercantile Exchange whose commodities newsletter makes the speculation argument, said: “The best way to predict the market is to create it.
“Goldman was giving a signal that the dumb money could come back into the oil market, and it worked,” Schork said.
Schork and others noted that a lot of money fled the oil markets May 5 after Goldman Sachs had warned clients that crude oil prices, then about $114 a barrel in New York and $124 a barrel in London, were too high.
Goldman and Morgan Stanley have declined to comment on their market forecasts.
Commodity trader Don Roose of U.S. Commodities in West Des Moines asked: “You tell me: Did the supply of crude oil suddenly increase enough in a single day to justify a $10 drop in the price of crude oil?”
Roose asserts that speculators, or investors who don’t take physical possession of crude oil, are a “major factor” in the wild swings in oil prices that taunt motorists from lighted signs at gas stations.
Dawn Carlson, president of the Petroleum Marketers Association of Iowa, has written letters to the Iowa congressional delegation urging a crackdown on speculators, through the Commodities Futures Trading Commission.
“We think speculation is a major factor in the volatility of oil and gasoline prices,” said Carlson, whose organization represents convenience stores and other gasoline retailers in Iowa.
Last week, U.S. attorneys filed lawsuits against two oil traders in Australia and California and three American and international firms, alleging that in early 2008 they tried to hoard nearly two-thirds of the available supply of a crucial American market for crude oil, then abruptly dumped it and improperly pocketed $50 million.
That activity coincided with the rise in crude oil prices that year to $147 per barrel, still a record. Retail gasoline prices soared above $4 per gallon that summer, cutting demand by an unprecedented 5 percent during peak driving season in June and July and teaching the oil industry that $4 gasoline may be the point of price resistance.
That lesson was relearned last month when prices reached $3.90 per gallon in Iowa and climbed over $4 nationally. The American Petroleum Institute reported that demand for gasoline dropped by 2.2 percent during April from the same month a year earlier.
So the sudden drop in oil prices in early May, spurred by speculative selling, gave conspiracy theorists more ammunition. Market manipulators pulled the price back just at the point where demand is hurt, the speculator detractors said.
Schork said he isn’t sure that a market conspiracy could work that deeply, but he said: “Speculation tends to exaggerate prices. There’s no question that demand for gasoline seems to soften between $3.50 and $4 per gallon.
Special thanks to Richard Charter