If crude-oil prices continue to decline, Colorado consumers could see average gasoline prices at the pump dip near $2 for a gallon of regular unleaded.
The price of crude oil has plunged by 16.3 percent since mid-December, driven down – in part – by weak demand for heating oil because of unusually warm weather in parts of the U.S. and Europe. In addition, some hedge funds and institutions have furthered the decline by shifting assets out of the energy sector.
Lower oil prices reduce energy costs for businesses and consumers and help economic growth.
But the recent drop in crude prices hasn’t yet translated to significantly lower prices at the pump. In the past month, the Colorado average for a gallon of regular gasoline has fallen by less than 2 cents, to about $2.18, according to AAA.
The retail price of gasoline generally falls several weeks after crude prices decline, said Neil Gamson, an economist with the U.S. Energy Information Administration in Washington.
“There is often a lag,” he said. “If the relatively low price for crude oil holds, we’ll see within weeks the price of gas decline.” He said retail gas prices nationally may fall within weeks by 15 cents or more.
Average Colorado gas prices for regular unleaded haven’t been below $2 since March 2005, according to AAA.
Gas in Colorado is often below the national average, in part because the state’s tax rate is slightly lower than what other states collect, said Roy Turner of the Colorado/Wyoming Petroleum Marketers and Convenience Store Association.
Turner said service stations generally raise prices in response to wholesale-price increases demanded by refiners.
But retailers don’t often immediately drop prices when crude oil falls because the gas in stock was purchased when wholesale prices were higher.
“I have nothing to do with the price,” said Gene Wilson, owner of Bonnie Brae Conoco in Denver. “We have to sell whatever we have in storage before we can change the price.”
Wilson said his station is selling a gallon of regular unleaded gas for $2.21, which he said is about 20 cents above the wholesale price he pays.
A possible decline in pump prices could be crimped if the Organization of Petroleum Exporting Countries announces a new round of production cuts or there’s a supply disruption, said John Felmy, chief economist with the American Petroleum Institute. “We have a very cloudy crystal ball right now,” said Felmy. “It largely depends on the weather and what OPEC does.”
OPEC controls about 40 percent of the world’s oil supply, Felmy said. The cartel is considering holding an emergency meeting in response to the recent slide in oil prices, according to The Wall Street Journal.
Barrels of light, sweet crude were up slightly Monday to about $53 in electronic trading on the New York Mercantile Exchange. That follows a roughly $1 jump to end last week, as crude rebounded from a 19-month low set at midday Friday. The commodity is off more than 30 percent from July’s record high.
That has been good for companies such as Denver-based Frontier Airlines, whose largest single expense is fuel, spokesman Joe Hodas said. He said that for each penny-per-gallon decline in crude-oil prices, Frontier achieves about $1.5 million in annualized savings.
“We’ve been choked by fuel costs the last few years,” Hodas said. “This trend is definitely positive if it maintains.”
About 57 percent of the retail gasoline price is determined by the cost of crude, according to the Energy Information Administration. Another 20 percent is determined by taxes; 15 percent by refining costs; and 8 percent by marketing and distribution.
Retail gas prices vary greatly by region. Motorists in Hawaii, for instance, currently pay $2.91 per gallon of regular gas, the highest in the U.S. People in Oklahoma pay $2.02, the lowest statewide average, says AAA.
Staff writer Will Shanley can be reached at 303-954-1260 or wshanley@denverpost.com.
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