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POSTED: Wednesday, Jan. 14, 2009

Whatcom County gasoline prices creeping up again

Although crude oil prices have dipped below $40 a barrel, motorists in Whatcom County and elsewhere on the West Coast are paying a lot more for gasoline than they did a month ago.

AAA Washington reported that the average price of regular gas here was about $2.05 per gallon Tuesday, Jan. 13, the highest of any metropolitan area in the state. That's up more than 25 cents from a month ago, although it still looks cheap compared to the record $4.50-a-gallon price that squeezed household budgets in June 2008.

Why are prices rising again?

John Felmy, chief economist with the American Petroleum Institute, said the price at the pump today reflects the higher crude oil prices that refiners were paying a few weeks ago. He didn't promise that today's lower crude oil price will push gasoline prices down again in a few weeks, although he said that could happen.

"I'm not in the business of forecasting prices, but the correlation (between the cost of crude and the price of gas) is very high," Felmy said.

Frank Holmes, northwest regional manager of the Western States Petroleum Association, agreed.

"Crude oil is the biggest driver of the price of gas at the pump," Holmes said. "There's a lag as it moves through the system."

The cost of crude oil generally accounts for more than half the price of gasoline, although the percentage varies with crude cost, according to data from the U.S. Energy Information Institute.

Felmy and Holmes also observed that prices have dropped dramatically from last summer's highs because a deepening recession has dampened global demand for fuel.

But Tim Hamilton, executive director of Automotive United Trades Organization, argued that crude oil prices alone don't explain the recent run-up in gasoline prices all along the West Coast.

Hamilton, whose group represents gasoline retailers, said fuel supplies are a bit reduced on the West Coast, partly because of a refinery fire in Alaska and the shutdown of another refinery in Bakersfield, Calif., as the result of financial problems.

Statistics on gasoline production, compiled by the California Energy Commission, do show a production downturn in that state. While similar statistics for the state of Washington were not immediately available, the Energy Information Administration also shows a small decline in overall West Coast production in recent weeks.

Besides the disruptions at the refineries in Alaska and Bakersfield, Hamilton said the oil refiners may be trimming production a bit in response to falling demand.

"The freefall in price occurred when consumers cut back," Hamilton said. "The price fell like a rock. ... It actually went down a bit farther than the (price of) crude oil warranted. ... The supplies exceeded demand because of the recession."

Hamilton also noted that in eastern Washington, where consumers have better access to fuel supplies from refineries in the Rocky Mountain region, gas prices are considerably lower. AAA reported regular gas prices of $1.60 a gallon in Spokane on Tuesday.

Holmes said there's nothing underhanded about refiners trimming supply as demand drops.

"If you don't have the demand, your supply doesn't need to be as high," Holmes said. "That's just showing that the market is working."