Ask Andy: What's up with gas prices? - WMC Action News 5 - Memphis, Tennessee

Reported By Andy Wise

Ask Andy: What's up with gas prices?

I launched this story as a search for an explanation about the latest spike in gas prices.

What I ended up with is a realization of how much gas retailers really disdain the oil refineries.

It started with an e-mail from "David" of Germantown:  

"...why are gas prices going up when oil is at or less than $40 a barrel?"

Well, I got a rather bold answer from Jamie Patterson, who runs Flash Market's retail headquarters in West Memphis, Arkansas.

He says the prices are going up because the oil refineries are reducing their runs to the gas stations to improve their profit margins.

So...how do you REALLY feel, Jamie?!

He says right now, the refineries are running at about 80 percent capacity, plenty of capacity he says to help stabilize prices.

But he says instead, the refineries are building up their inventories.  That decreases the gasoline inventories, and the prices go up.

"Let's say, for instance, they need 4 cents a gallon to make money, and refinery margins are at 3 cents.  Well, then they just don't run," Patterson says.  "And if they don't run, that creates a supply problem on the gasoline side, so the market goes up, and then they make more money."

Bill Day, director of media relations for Valero Energy Corporation, replied by saying after a low fourth quarter last year, "The cost of crude oil going into the refinery was higher than the market price received for gasoline being made at the refinery. Any time your raw material costs are higher than what you get for your product, it's a bad situation for a producer. As a result, many refining companies scaled back production of gasoline until margins came back into balance."

OK, so I asked Day if that means the margins are "in balance" now and can we expect gas prices to either stabilize or drop.

He answered cryptically that margins are improving, but they are at "historic lows."  He said the refineries will have to watch the markets closely.

So will we.

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