No Solace at the Gas Pump

It would appear to be a mystery worthy of Sherlock Holmes. If OPEC is reeling and the price of crude oil is falling, then why has the cost of gasoline been going up? The Los Angeles-based Lundberg Letter shows that since February the average retail price for all grades of gas has jumped from $1.14 per gal. to $1.24, taking some of the fun out of summer driving.

Though far from elementary, a plausible explanation for the trend can be found in the cyclical swings of supply and demand for auto fuel. Little more than a year ago, the world was swimming in gasoline. As a result, prices at the pump began to fall, and oil companies suffered a profit squeeze. The average cost of a gallon of gas declined from $1.22 in May of 1984 to $1.15 by last January. In response, companies curbed production. At least 18 American refineries closed last year. The cutbacks have reduced U.S. inventories of gasoline by 9%, to 222 million bbl., since December. The tight supply and a seasonal pickup in driving this spring helped push prices back up. Another factor contributing to higher prices was the expense that oil companies faced to meet a July 1 Government-imposed deadline for reducing the amount of lead in gasoline by more than 50%.

This summer's surge in prices is likely to be temporary. The hefty profits being made on gasoline will probably stimulate production. In addition, imports of auto fuel from overseas refineries are on the rise. Most industry experts predict that by the end of the year, at the latest, the cost of gasoline will be moving in the same direction as the price of crude oil: down.