L.I. gas prices peak then drop as summer wanes

Experts wary of weather disruptions but say market dynamic is stable

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Retail gasoline prices finally began to inch down slowly at the end of last month after reaching their highest summertime levels since 2014, according to local industry

analysts.

GasBuddy, which tracks daily prices at more than 1,100 Long Island gas retailers reported a drop in average prices for Aug. 20 to $2.94 per gallon, compared with $2.96 per gallon in the previous week. Nevertheless, the average was still 46.2 cents per gallon more than in the same week last year, when gasoline was selling for an average of $2.48 per gallon. That translated to a difference of more than $8.30 for a car with a 16-gallon tank.

Averages for New York State have been as high as $3.06 per gallon. Prices at local stations were as low as $2.79 in Elmont; $2.81 in Franklin Square; and $2.89 in Valley Stream.

“Prices started rising at just about this time last year” after Hurricane Harvey caused outages in refining capacity, said Long Island AAA media manager Robert Sinclair, who also publishes a weekly newsletter analyzing local gasoline markets. The outages were compounded by cutbacks in daily output by many producing nations, he added, which resulted in a total loss of some 1.8 million barrels per day of crude oil. Eventually, the capacity shortfall cost as much 25 to 30 cents per gallon at the pump, Sinclair said

The good news is that hikes in local gasoline prices haven’t kept pace with the increases in benchmark prices for crude, which have soared by as much as 50 percent year-over-year. West Texas Intermediate opened on Aug. 27 at $68.87 per barrel. WTI is the benchmark for U.S. petroleum products.

According to Kevin Beyer, an independent station owner and operator and president of the Long Island Gasoline Retailers Association, the decrease in retail gasoline was several weeks overdue. “We’re into the season where prices should be going down” after hitting peak demand in mid-July, when vacation drivers usually cause gas prices to spike, he said. “I don’t understand why they haven’t fallen.”

According to AAA’s Sinclair, more than 80 percent of Americans use their cars for vacation travel.

Despite last year’s outages, neither Sinclair nor Beyer could account for the high prices throughout the past year. Gasoline cost a comparatively modest $2.58 on Jan. 1, before jumping 11 cents per gallon in February.

“U.S. refineries are currently running at 99 percent capacity,” Sinclair said, pointing out that the U.S. is one of the top three oil-producing nations, along with the Russian Federation and Saudi Arabia. The U.S. imports less than 20 percent of its oil from the volatile Middle East region. Domestic production accounts for some 38 percent of total U.S. consumption, with imports from Canada and Mexico adding an additional 40 percent. And the U.S. is a net producer, exporting some 39 million gallons of refined products per day.

“Gasoline demand peaked last month at 414 million gallons per day,” Sinclair said, while production soared to 428 million gallons. “Prices should have started to drop before now,” because of the supply-side imbalance.

Beyer agreed. Supply was stable, he said, and outpaced demand. According to that scenario, prices should have been trending lower throughout the year.

The two experts disagreed on the effects of the futures market, however. “I don’t think emotion has as much to do with pricing as it used to,” Sinclair said — a reference to the volatility of the spot and futures markets. He told of an attack in July by Yemeni rebels on two supertankers bringing oil through the Straits of Hormuz in the Persian Gulf, resulting in the loss of hundreds of thousands of barrels. “Once upon a time, that would have rocked the markets for at least a few days,” even trickling down as far as the price at the local pump, he said. “But it had no affect at all.”

But Beyer held the opposite view. “It used to all be supply and demand. Now, it’s mainly the market that’s pushing prices” through futures trading and forward contracts.

Many of the brand-name stations, such as Exxon, Mobil and Sunoco, are owned by local and regional distributors, and “prices are dictated by the company, not determined by the individual retailer,” Sinclair said. “Not many stations are still owned by producers.”

Sinclair also mentioned “zone pricing” — the practice of charging higher prices in different areas, such as near turnpikes and parkways or in more prosperous neighborhoods. Retailers deny that such practices exist, but an informal survey last month showed differentials of as much as 15 cents per gallon between stations along Hempstead Turnpike and those located next to parkway onramps.

As an independent, Beyer said he had to be mindful of other stations’ pricing, even if it meant selling at cost or even at a slight loss. “If the station across the street is selling for less, I might have to swallow a couple of cents,” he said. He added that he was unlikely to try to lock in prices through forward contracts or by negotiating with multiple distributors. “I have one distributor I do business with, and I get all my gas from him.”

According to Beyer, margins for retailers like him amount to just pennies on the gallon. “That’s why most of us have repair shops or inside stores,” he said. “We couldn’t survive just on selling gas.”

“Gasoline prices rise quickly and come down slowly,” Sinclair said, repeating an industry mantra. One reason is the capacity local retailers keep in their tanks. Volume retailers might have as much as 10,000 gallons underground, while average dealers’ tanks hold from 2,000 to 3,000 gallons. An average retailer sells in the low four figures per day, Sinclair estimated. “They need to get rid of what they have in their tanks, and they don’t want to sell that at a loss,” he said.

As summer turns into fall, refiners will begin converting from summer to winter gas. Winter gas is cheaper to refine, does not come in as many grades and does not require the addition of volatile organic compounds, Sinclair said. Refineries come offline for two or three days to retool, he said.

“It’s not a one-time thing,” Beyer said. Refineries begin the process sometime after Sept. 15, and conversion is usually complete by Nov. 1. “It takes about six weeks,” he said.

Climate remains biggest variable affecting gasoline prices going forward. “A [seasonal] push-down on demand will help prices drop,” Beyer said. “The only factor is the weather.”

Because much of the gasoline consumed on Long Island and throughout the Northeast comes from refineries along the Gulf of Mexico, everyone from big regional distributors to small local retailers watches weather forecasts closely throughout hurricane season — roughly June 1 to Nov. 30. No hurricane has made landfall in the U.S. since Hurricane Katrina in August 2005.

“We may see some blips until the end of the season,” Sinclair said. But he remained cautiously optimistic that prices will continue to fall.