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Gasoline Hits Record High at Pump Despite Demand Decrease

THE WALL STREET JOURNAL: Gasoline Hits Record High at Pump Despite Demand Decrease

April 10, 2008

Americans are cutting back on driving as they feel the pinch from high oil prices and a soft economy, but crude’s rise is preventing the price at the pump from falling.

On Wednesday, after the federal government reported a sharp drop in crude inventories, the price of a barrel of crude oil on the New York Mercantile Exchange rose $2.37, or 2.2%, to finish at $110.87 a barrel. This boosted the wholesale price of gasoline by 0.9% to $2.77 a gallon on the exchange.

U.S. gasoline demand has trailed year-earlier levels over the past 12 weeks, the longest period of sustained lower demand since 1991, according to weekly data released by the Energy Information Administration on Wednesday. But less driving isn’t putting a dent in the price at the pump, which this week reached a record-high average of $3.33 for a gallon of regular gasoline, the agency said.

Lofty oil hurts both consumers and refiners, which turn oil into usable products such as gasoline. Oil prices have risen 16% so far this year because of tight supplies, surging global demand, a weak dollar and continued investor interest in the commodity as a hedge against inflation. This has significantly increased costs for refiners. Though gasoline prices are higher, refiners have been unable to pass on all the cost to the driving public.

Instead, many have cut back production, which has helped thin supplies leading up to the peak summer driving season. Gasoline stocks fell 3.4 million barrels to 221.3 million barrels during the week ended Friday from 224.7 million the previous week. Still, stocks are considerably higher than their level of 199.7 million barrels during the same period last year.

“With oil prices at those levels, refiners just can’t afford to stock crude and are cutting back on their inventory positions as deeply as they can,” says Antoine Halff, an analyst at Newedge, the jointly owned brokerage arm of Société Générale SA and Crédit Agricole SA’s Calyon unit.

Consumers are already being extra careful to conserve gasoline, said Jeff Lenard, a spokesman for the National Association of Convenience Stores. The group’s members report gasoline sales are mostly flat on the year, while sales of food, drinks and other products they sell inside their stores have increased. This suggests consumers are bundling shopping trips with trips to the gas station to save on gas, he said.

Some companies are trying to fight off consumer wariness when it comes to spending. Motel 6, owned by France’s Accor SA, launched a campaign that it hopes will promote its low-price rooms among vacationers who don’t usually stay there. The company created an online travel guide that will include activities such as wine tasting.

“The idea is to reach out to people…particularly in these times of high gas prices and a shrinking economy,” said Jeff Palmer, senior vice president of sales and marketing.

Crude-oil stocks fell 3.2 million barrels to 316 million barrels during the week ended Friday from 319.2 million barrels the previous week. During the same period last year, oil stocks were at 333.4 million barrels, according to the EIA.

Write to Ana Campoy at [email protected] and its also non-profit sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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