Relief Sought At State And Federal Level—

Gasoline Prices Pumped Up To $3.11 In Newtown

By John Voket

According to gasoline industry analysts, the prices we are paying at the pump by the end of April may set the standard for what we can expect to pay through at least Labor Day. But in Hartford and Washington, the outcry from the public over the astronomical increases of late is not falling on deaf ears.

President Bush this week instructed federal environmental regulators to temporarily waive local fuel blend requirements when necessary to boost gasoline supplies and hold down prices.

Bush, saying soaring gasoline prices are like a hidden tax on working people, unveiled an energy plan April 25 that includes a provision for the Environmental Protection Agency to waive requirements that certain areas of the country sell only specially formulated gasoline that reduces smog-causing emissions.

Gasoline in many communities during the summer months must be blended with ethanol or MTBE. However, recent concerns about MTBE polluting water supplies have prompted refiners to abandon its use.

Locally, the Connecticut Senate voted Tuesday to ban the oil industry’s longtime practice of “zone pricing” of gasoline. In a report in The Hartford Courant, Michael J. Fox of the gasoline retailers association said he “never” thought he would see the day when zone pricing could be banned.

“It’s absolutely historical — unprecedented,” Mr Fox said Tuesday night at the state capitol. “No one in the country has ever gotten it out of committee” in a state legislature.

Zone pricing is legal across the country, and all attempts to overturn the practice on either the state or national level have failed.

Here in Newtown, prices at local self-service stations are topping out at $3.11 at the Exxon on Sugar Street for regular as this edition of The Bee went to press, and at least two other area stations are skating just under the $3 price for self-service with regular grade still going for $2.99 a gallon.

This increase has caused consumers locally and across the nation to wonder if this is just the beginning of increases that will continue through the upcoming peak driving season, or just a short-lived blip.

The fluctuations are also playing havoc on business-related concerns, from contractors who never know how much their next load of sheetrock or gallon of paint will cost, to restaurants and grocers who depend on delivery companies to deliver the products they prepare and retail to hungry consumers.

And those consumers are finding less and less in their budget to pay for these and other services, now that some are shelling out hundreds more dollars each month to fuel up their own family vehicles.

While it is difficult to know where gasoline prices will go, given the uncertainties in oil and gasoline markets this season, it does appear that April might be a critical month that will set the tone for gasoline prices this upcoming spring and summer.

The markets are likely to be more jittery about the weather this summer in light of the widespread disruption of Gulf oil and gasoline production caused by Hurricanes Katrina and Rita last year.  Gasoline spiked to a national average of $3.07 a gallon — and considerably higher in some areas — after last year’s hurricanes.

On Wednesday, MarketWatch reported gasoline futures slipped Wednesday and crude prices fell under $72 a barrel after a US government report showed that gasoline supplies fell for an eighth week. But the fuel’s import level was among the highest on record and refinery activity climbed two percent.

Crude for June delivery was down 63 cents at $72.25 a barrel on the New York Mercantile Exchange after reaching a low of $71.95. It tapped a one-week low of $71.75 on Tuesday in a continued retreat from the record above $75 hit last Friday.

May heating-oil futures were down 3.31 cents at $2.025 a gallon, while May gasoline futures were down 0.91 cent at $2.12 a gallon after a climb to a high of $2.15. Early Wednesday, the Energy Department reported a 1.9-million-barrel decline in motor gasoline supplies for the week ended April 21, to tally a drop of 25.3 million barrels in eight weeks.

Total supply stands at 200.6 million, the government said — that is 5.6 percent below the level a year ago.

An important factor influencing gasoline markets this month will be the degree of refinery maintenance. Some analysts are projecting refinery maintenance in April to be much larger than in recent years, both for distillation and upgrading units. Should this projection pan out, this could necessitate significant inventory draws for gasoline in order to meet projected demand.

Should gasoline inventories draw another eight million barrels during April, certainly possible if the projections of large refinery maintenance hold true, they would end the month just above the bottom end of the average range. Were such a decline relative to normal levels to occur, upward pressure on prices would be expected.

Should refinery maintenance not be as large as some are expecting, however, and if some of the remaining refinery outages due to last fall’s hurricanes come back online this month as others expect, then inventories might not draw significantly in April. Should refinery gasoline production keep gasoline inventories from drawing this month, the increase in supplies could limit upward price pressure, perhaps keeping retail prices from continuing to rise throughout the month.

The other key factor that should provide some more clarity by the end of the month about this summer’s gasoline prices will be the transition from MTBE to ethanol in some reformulated gasoline (RFG), particularly along the East Coast and in some cities in Texas.

It is expected that due to the removal of the federal oxygenate mandate in early May, refiners, pipelines, and other users of MTBE will have mostly made alternative plans by the end of April. Perhaps by the end of April, a significant shift in volume from the NYMEX RFG futures contract towards the newer RBOB (reformulated gasoline blendstock for oxygenate blending) contract will be seen, thus providing more clarity about gasoline futures prices.

Largely because of the two factors cited above (degree of refinery maintenance and the transition to ethanol RFG), April might likely be a critical month in gasoline market developments for this upcoming driving season.

Bob Dinneen, president of the Renewable Fuels Association, a trade group that represents the ethanol industry, told a Senate hearing last month that the industry will be able to meet ethanol demand even as refiners move away from using the additive.

He said the industry is filling East Coast ethanol storage tanks and contracting barges that can ship ethanol down the Mississippi River to Gulf Coast refiners and up the Atlantic seaboard.

“The market is responding,” he said.

But he also said it was the oil industry’s decision to stop using MTBE this soon. Environmentalists and Democrats criticized President Bush’s proposal, saying it would jeopardize air quality without solving supply and pricing problems.

Last year, Congress as part of broad energy legislation lifted the requirement that refiners include two percent oxygenate — ethanol — in gasoline sold in areas having clean air problems, clearing the way for refiners to stop using the additive.

(Associated Press reports were used in this story.)