Demand for gas and oil are down, but prices keep rising

Associated Press / October 20, 2009

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Despite persistently low demand, prices for gasoline have spiked over the past week along with crude oil, threatening one of the very few points of relief for the recession-stricken US consumer: cheap gas.

That may be frustrating for consumers, with few signs that people are driving more now than during what was a dismal summer for the travel industry. People aren’t buying much gasoline.

“I wish it could go down under $2,’’ said Cheryl Couture, 50, who was filling up at a station in Columbus, Ohio, where a gallon had risen to $2.55.

Couture has watched as gas prices have ticked higher. Prices have risen for three straight weeks, reaching a national average of $2.574 per gallon of unleaded regular, the Energy Information Administration said yesterday.

Rather than rising consumer demand or a tightening of supply, the falling US dollar is most likely to blame.

All one needs to do is look at the price of crude, which crossed $75 for the first time on Wednesday, then neared $80 yesterday.

Oil is bought and sold in dollars, essentially making it a cheaper investment when the US currency tumbles. The dollar has continued to fall throughout the month.

And the rising price of crude is exacerbating problems that already existed for the refiners that make and sell gasoline.

People are driving less, trucking companies are shipping less, and airlines are cutting back on jet fuel purchases because businesses travel has ebbed.

That lack of demand has forced refiners to cut back production to levels more common in the aftermath of a hurricane.

And because crude prices are rising, profit margins at refiners who must buy crude to make fuel are shrinking. As a result, they are making even less fuel.

US gasoline supplies fell by more than 5 million barrels last week, but are still well above normal levels at this time of year.