Winter-Blend Gas Factors in Additional Price Cuts

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Winter-Blend Gas Factors in Additional Price Cuts

With winter-blended fuels being supplied by refiners this week, retailers can expect gas prices to stay low. However, whether that will dramatically increase the downward trend of prices is not certain, The Associated Press reported.

Winter-blend gasoline is cheaper because it does not contain the costly processing that makes summer gasoline cleaner. The Environmental Protection Agency requires the removal of the volatile chemicals that will evaporate in hot temperatures and mix with pollutants to create ozone in summer months, the AP reported. The blends differ by about 1 cent per gallon in price, but pump prices between the two fuel blends can vary as much as 10 to 15 cents at the pump, according to Phil Flynn, analyst for Alaron Trading Corp.

But the switch may not have a significant impact on gas prices, according to some experts. Jonathon Cogan, spokesman for the Energy Information Administration (EIA) told the AP that "If there is any price effect, it will be dwarfed or masked by the changes caused by the drop in crude prices and a drop in gasoline demand."

If prices are affected by the winter-blend, the results will not be seen for weeks. "You just can't flip the switch," Jim Tudor, president of the Georgia Association of Convenience Stores, told the AP. If prices are eventually influenced, "any cents in that area certainly could be overtaken by world events, like Iraq or hurricanes," said Richard Cobb, executive director for the Georgia Petroleum Council.

Other factors, including above-average supplies are also sending prices downward, USA Today reported. "We had record levels of gasoline imports for a while, more than 1 million barrels a day just of gasoline," Neil Gamson, analyst for EIA, told the newspaper.

These factors have made the EIA revise their forecast for gas prices for the rest of 2006. According to its monthly short-term forecast, the average price per gallon will be $2.65 for the remainder of 2006 and the beginning of 2007, USA Today reported.

The original numbers predicted were $2.72 for 2006 and $2.67 for the start of 2007. Average price per gallon in 2006 is $2.689, according to the EIA data.

"The reason prices are going down so far so fast is that they shouldn’t have been that high in the first place," Mike O'Connor, president of the Virginia Petroleum, Convenience and Grocery Association told the paper. "Two reasons they were: fear and speculation."

According to the EIA, the average price will dip to $2.55 in January 2007, only 23 cents more than January 2006 numbers, before rising again.

Retailers can look forward to low gas prices for the rest of this year. "Christmas shopping and $2.50 gasoline is a good equation," Art Hogan of Jeffries & Co., told USA Today.

In the immediate future, relief from increasing interchange fees will benefit stations. "When it was $3, I was paying 9 cents a gallon in credit card fees. … There were many times I was close to breaking even or even losing money," Jinger Duryea, president of C.N. Brown, told USA Today. "We're all breathing a sign of relief." C.N. Brown, located in South Paris, Maine, operates 90 c-stores that sell fuel.

In other gas price related news, consumers may find themselves getting even more for their dollar, as officials in Massachusetts report that many gas pumps there are dispensing more fuel than what is being measured -- and causing lost profits to gas stations.

Regulators in Massachusetts told the Boston Globe that they have made more adjustments to pumps this year than all of 2005, and most of the adjustments are to reduce the amount of gas pumped. "The station owners are happy to see us these days," Mark P. Coyne, head of Brockton's weights and measures department, told the Globe. "Usually they're not happy to see us."

The director of weights and measures in Framingham, Mass., Jack Walsh, told the paper that he needed to adjust 67 out of 193 pumps tested this year. Out of those, 91 percent had to be adjusted downward because they were pumping too much gas.

The suspect is the additive ethanol, which was added to gasoline in the state in May. Inspectors told the Globe that ethanol works as a solvent, scrubbing the inside of the measuring chamber on pumps, flushing out lacquer and debris, and in effect, enlarging the chamber and resulting in more gas being pumped.

At a recent five-gallon test at a Gulf station in Framingham, Walsh found that one pump dispensed an additional 7 cubic inches of gas. If gas was priced at $2.70, consumers would save 1.6 cents a gallon, or 25 cents per 15 gallons, the newspaper reported.

For stations, this adds up. For every 10,000 gallons sold, the pump would be giving away an additional 60 gallons. "That's not right. People should get the gas they pay for," George Elkhoury, operator of the station, told the Globe.

The problem might be more than just stations in Massachusetts, however. "It's happening all over the East Coast right now. We're all experiencing it," said Charles Carroll, the assistant deputy director at Massachusetts Division of Standards.

Gilbarco Veeder-Root, a manufacturer of fuel dispensers told the paper that it was not aware of any fuel dispensing problems related to ethanol.