Price of gas tops $3.30

Refiners cut back to boost profits

The Associated PressApril 5, 2008 

— Retail gas prices surged to a new record above $3.30 a gallon Friday and appear poised to rise further in coming weeks as supplies tighten.

Oil prices, meanwhile, supported the gas price rally by jumping more than $2 a barrel after a dismal employment report sent the dollar lower.

At the pump, gas prices rose 1.4 cents overnight to a national average of $3.303 a gallon, according to AAA and the Oil Price Information Service. That's the latest in a series of records, and about 60 cents higher than a year ago.

In the Triangle, the price rose 1 cent to $3.274.

While oil's surge above $100 over the last month has boosted gas prices this year, analysts now expect prices to continue rising no matter what direction crude takes. The Energy Department expects prices to peak near $3.50 a gallon later in the spring, but many analysts say the spike could approach $4.

That's because gasoline supplies are falling, in part because producers are cutting back on output of the fuel because of the high cost of crude -- the more expensive crude is, the more refiners have to pay and the lower their profits are. They're also in the process of switching over from producing winter grades of gasoline to the less polluting but more expensive grade of fuel they're required to sell in the summer.

"That cuts back on some of the supply and helps to pump up the price," said Mike Pina, a spokesman for AAA.

Margins down

The margin between the price that refiners pay for crude and receive for selling the products they make from it is $11 to $12 a barrel right now, according to the Oil Price Information Service. However, that margin has slipped occasionally into negative territory in recent weeks, and is well below margins of $37 a barrel refiners earned last spring.

On Thursday, ConocoPhillips said high crude prices were significantly hurting its refining margins. Last week, Valero Energy cut output at its Corpus Christi, Texas, refinery because of high supplies and falling demand. Analysts think many other refiners are adopting similar tactics.

Friday's price spike is a sign that those cutbacks may be working, giving everyone in the supply chain, from refiners to retailers, the ability to raise prices to try to boost margins. Many gas retailers say they make more on the sale of coffee and sundries in their convenience stores than gasoline.

Of course, that's not good news for consumers also paying higher food prices and watching their home values slide. Food prices are high in part because of diesel prices, which held steady overnight at a national average of $4.023 a gallon, near recent records.

On Friday, light, sweet crude for May delivery rose $2.40 to settle at $106.23 a barrel on the New York Mercantile Exchange. Gasoline futures for May delivery rose 3.24 cents to settle at $2.7567 a gallon.

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