Driving on Highway 80 East one morning last week, motorists may have noticed a gas station at the Burkhalter Road intersection charging $3.45.9 per gallon of regular, while across the street the price was $3.57.9.
By the afternoon, both stations were charging $3.57.9. While volatility in gas prices has become almost common in Bulloch County, Georgia and around the nation for many years, it still drives motorists crazy and fuels the idea that drivers are being gouged by the oil companies, the government, gas station owners or a combination of all three.
But for Patrick DeHaan, senior petroleum analyst for GasBuddy.com, the two primary culprits for high gas prices, and their volatile nature, are easy to identify: speculators in the gasoline futures commodities market and growing global demand, particularly in China.
“The Chinese impact is huge,” DeHaan said. “The Chinese are importing more than double the oil they were a decade ago. Their market is rapidly improving as US consumers continue to buy Chinese goods, ship our money over there. They are now starting to live the American dream. They are now going out and buying cars. And all these vehicles require gasoline. China is building infrastructure similar to the United States. They also are trying to fill a strategic reserve, again similar to that of the US. And with all that additional demand for oil … I’m sure oil-producing countries love it because it’s driving the price of oil up due to significantly more demand than five or 10 years ago.”

Gasoline futures market
DeHaan also believes trading on the unleaded gasoline futures market that was opened 10 years ago has contributed heavily to the big swings in gas prices sometimes seen on a daily basis. Commodities futures, or futures contracts, are an agreement to buy or sell a commodity at a specific date in the future at a specific price. In the case of gas, investors can have a huge influence on the price.
“In the past 10 years with the rise of electronics that have allowed for trading of gasoline futures, volatility has gone through the roof,” Dehaan said. “Ten years ago gasoline futures would go up maybe a few pennies per day, now we’re seeing prices go up 5 to 10 to 20 to 40 cents per day in some markets. There’s just intense volatility because just as quickly as investors get in the market they get out. That causes volatility and that makes it down to the (price at the pump).”
In fact, DeHaan believes consumers around the world, not just the US, would be paying a lot less per gallon without the speculation of the futures market.
“If gasoline futures never were enabled to be traded on the open market, if you removed all the public money or the privately held money that’s invested in the futures, it’s very difficult to tell how much, but I think prices would be much lower,” he said. “If you take all the speculation out then the only folks who would be involved in the market are the people pumping oil, delivering oil and storing oil. Now you have all these paper traders who are essentially driving up the cost of crude oil anywhere from $10 to $30 per barrel.”
Another factor that infuriates drivers is when a world event such as the threat of instability or war in a region, or a hurricane is forecast, gas prices rise almost immediately at the pump. Yet, prices take much longer to drop back down. DeHaan said basically what gas stations charge is determined by the price they pay to buy gas from wholesalers and competition.
“Gas stations raise their price in anticipation of a rise in their wholesale costs,” he said. “Many stations check the cost of their wholesale cost daily or even more frequently. Even if they don’t need supply, they’re watching cost. Say gasoline shoots up 20 cents today and they don’t buy it, they know three days down the road they’ll need to buy supply of more expensive gasoline so they raise prices today anticipating the next load could be anywhere from $500 to $1,500 more in cost. So, they try to offset some that cost by raising prices.”

Prices come down slowly
He offered an analogy to selling an item on eBay as to why gas prices come down more slowly.
“Prices go down slower because that’s when some of the stations recoup money from when sometimes they can’t raise prices quickly enough due to competition,” DeHaan said. “Think of eBay. You sell something for $100 and nobody bids. You don’t necessarily lower it $25. You lower it very slowly to see what people are willing to pay because you can. You’re not going to wake up tomorrow and gas stations are selling for 20 cents less. They use the time (after a price spike) to make money. They generally tend to make more money when the trend is downward and they tend to make less money when the trend (as opposed to a spike) is upward.”
DeHaan said competition is why the price of gas varies from city to city and region to region in Georgia. Gas is cheaper or more expensive in Statesboro compared to other parts of the state or even a neighboring town because the market has set the price. The lowest price in Statesboro Friday – $3.48 per gallon – is higher than the lowest price in Augusta – $3.39 per gallon – due to competition, not because Augusta stations have access to cheaper gas or that Statesboro is a college town, he said.

The future
Looking into the future, DeHaan doesn’t see gas heading below $3 per gallon again.
“It would be difficult,” he said. “I think if we would see gas go below $3 again, it would have to be accompanied by an economic slowdown. I don’t foresee it happening.”
But he also thinks prices won’t hit $4 per gallon this year.
“Unless there is a hurricane in the Gulf or a serious disruption to supply, I don’t see $4 per gallon. I think we’ll see on average $3.40 to $3.80 per gallon for the rest of the year.”
So, bottom line, does DeHaan believe oil companies are gouging American drivers?
“Certainly oil companies make more money when the price is higher, but a lot of that is simply supply and demand at work,” he said. “Some of that now is speculation, too, but it’s really supply and demand. And there’s a whole lot more demand now than there was 10 years ago.”




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