Fuel prices on the rise again

Published 10:14 pm Thursday, December 15, 2005

On the heels of record reductions in gasoline prices, area drivers are once again experiencing the doldrums of climbing fuel costs.

According to U.S. Energy Information Administration, after an 80 cent drop over the last two months, gas prices in the Lower Atlantic region of the U.S. have jumped more than six cents this week.

As of Thursday, the EIA reported current gas station prices averaging at $2.157 per gallon.

The unexpected increase has some residents asking if the fuel crunch will ever end?

“It sucks,” said Josh Nichols, a customer at Murphy USA in Cullman on Thursday. “They stayed down for a little while, but now they’re going back up.”

“I guess it’s because of the Christmas rush and all, but they really shouldn’t be going back up yet,” said Bashir Ruatti, who was with Nichols on Thursday. “Especially since we took over Iraq. We took Saddam out so we could get lower gas prices.”

“I guess the government thinks they need more money,” said Ricky Armstrong, who was also pumping gas at Murphy USA on Thursday. “It’s either that or certain people that have their own stations are setting their own prices.”

Despite their concerns, Pete Williams, an associate professor of economics at the University of North Alabama in Florence, said the recent hike in prices is more likely a cyclical hiccup than a sign of impending doom for SUV owners.

In a phone interview Tuesday, Williams explained that gas prices are more of a balancing act between the availability of gas and the quantity we want to buy.

“Any time there’s a shock to demand or supply, the market has to adjust to meet the new equilibrium,” he said.

According to Williams, Hurricane Katrina caused a huge shock to the southern fuel market. With pipelines and refineries off-line, low supplies drove prices extremely high.

“Now that they’re coming back up, prices are starting to drop back down,” he said.

Other factors influencing the recent drop, he said, include a warmer winter than expected, which has caused a surplus of heating oil in the market, and a change in consumer behavior as drivers use less fuel in an effort to ward off higher costs.

“The problem is we can’t predict all of these forces,” Williams said.

Despite the recent, large price reduction, prices are still higher than they have been in previous years.

According to the EIA, lower-Atlantic prices this year are a full 31 cents over last year’s price.

Williams blamed the higher price on the ever expanding Asian economy.

As Asian countries, particularly China, consume more fuel, U.S. oil companies will find it increasingly difficult to purchase oil on an open market, he said.

“They are out there bidding against us for oil,” he said. “That drives the prices higher.”

With the new Asian giant on the scene, it is difficult to tell where and when prices will level-out.

In addition to the global market, the higher prices have some Democratic Senators asking if large oil companies may be taking advantage of consumers.

In November of this year, big oil CEOs were grilled about record profits during a special hearing in the Senate.

Senators pointed out that, as a whole, third-quarter profits for the oil industry jumped 62 percent to nearly $26 billion this year.

In addition, Exxon Mobil cashed-in with a record setting $9.9 billion in profits for the quarter, despite being ravaged by Hurricane Katrina in September.

Oil executives were also accused of intentionally refusing to build more U.S. refineries in an effort to keep supply low and costs high.

Williams said it is still too soon to draw any conclusions.

“In the mid 1980s, oil companies were losing money hand over fist, and nobody cried for them,” said Williams. “If that was fair then, than it’s also fair to pay higher prices now.”

While Williams did not offer any advice for driving prices down, he advised consumers who thought they were really being treated unfairly by oil companies to buy stock in those companies.

“If you can’t beat them, join them,” he said. “That way you can at least share in the profits,” he said.

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