If Supplies of Oil Are Up, Why is Gas Still Pricey?

From National Public Radio, June 20, 2013
by Andrew Schneider and Marilyn Geewax

Supplies of oil have been surging this year, and U.S. drivers, who have been switching to more fuel-efficient cars, are using less gasoline.That would seem to be the right economic combination to push down prices at the pump, but gasoline prices have remained stubbornly high this summer. 

Even some people in the industry are wondering whether the law of supply and demand somehow has been repealed."I'm actually quite dumbfounded," says Azam Zakaria, vice president of Lone Star Petroleum, a family owned company that owns and operates 15 gas stations in the Houston area.Zakaria, who has been in the business for nearly three decades, used to believe that more oil would mean lower prices, but he hasn't been seeing that lately.

The disconnect between supply and demand seemed to get even wider Wednesday, when the U.S. Energy Information Administration released its latest data, showing that U.S. crude oil inventories rose by 0.3 million barrels last week. Most experts had been expecting the oil inventory to decline by 0.6 million barrels.

That sort of surprise keeps happening as more and more domestic oil gets pumped. In fact last year, the United States saw the largest-ever yearly rise in oil production, according to a statistical review released last week by BP, the global oil giant.At the same time, global oil reserves continue to grow, the BP report says.

The price of crude oil, however, continues to hover around $100 a barrel, and an average gallon of regular gasoline is still running above $3.62 nationwide. Supplies of oil have been surging this year, and U.S. drivers, who have been switching to more fuel-efficient cars, are using less gasoline.That would seem to be the right economic combination to push down prices at the pump, but gasoline prices have remained stubbornly high this summer.

Even some people in the industry are wondering whether the law of supply and demand somehow has been repealed.  At the start of this year, the price was about $3.20 a gallon. Zakaria worries that speculators are pushing up prices beyond what the usual balance of supply and demand would dictate. "Just to be blunt with you, I think that it's a commodity now that is being exchanged at Wall Street," he says.