Tags: Gulf | Gasoline | Prices | Demand

Gulf Oil CEO: Gasoline Prices to Easily Hit $4.50 Despite Weak Demand

Tuesday, 28 February 2012 09:00 AM

Gasoline prices will continue climbing thanks to East Coast refinery closures and are set to approach $4.50 despite weak demand, says Joe Petrowski, CEO of Gulf Oil.

"I think prices are going to go much higher, especially on the East Coast, where we have lost 50 percent of our refining capacity in the last year between the closure of the St. Croix refinery, three refineries in Philadelphia and some bankruptcies in Europe, so I think we are probably go towards the $4.50 range."

The St. Croix Hovensa refinery, operated by Hess and Venezuelan state-owned oil company PDVSA, closed down recently and crimped supply of refined products to eastern U.S. states.

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Meanwhile high gasoline prices are prompting consumers to buy less fuel, which cuts into demand from refineries and forces them to close or cut capacity.

Less refineries in operation cuts overall supply and pushes up gasoline prices higher as part of a vicious circle.

Consumers, it appears, are already buying less these days.

"What's extraordinary is demand is exceedingly weak. Heating oil demand — mainly because of the winter — is down 14 percent and driving is less than it was in 2005."

Nationwide, gasoline prices have been climbing and while some parts along the East Coast have been stable.

Expect price hikes to resume shortly in places where they haven't already.

"Retail prices always lag wholesale, both up and down. They are sticky," Petrowski says.

Most gasoline retailers in the United States are run by small business owners who operate about five stations or less, and their profits come from items sold in the gas-station convenience stores like food and groceries.

Those owners may be holding off on raising gasoline prices at the pump to entice drivers into make purchases inside the convenience stores, which may account for the spotty nationwide increases.

"For example at our Cumberland Farms retail store, if a customer comes in and spends the average ticket of $10, the margin is three times what we make if you come to the pump," Petrowski says.

"Legend has it they like to make money at the pump, but the reality is they use sometimes gasoline as a loss leader to bring you inside the store."

Gasoline prices are averaging just $3.70 a gallon nationwide, according to AAA data, although one key Republican Senator says it's too early to tap the Strategic Petroleum Reserve.

"When prices increase at the pump, and politicians get concerned about the repercussions of that, they look for a quick fix," says Alaska's Lisa Murkowski, the top Republican on the Senate Energy Committee, according to Reuters.

"If we have used up or tapped into the insurance policy, just to try to take the pressure off some of the gas prices, I think we're going to regret that decision."

Editor's Note: Obama Donor Banned This Video But You Can Watch it Here

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Tuesday, 28 February 2012 09:00 AM
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