Gas set to fall
below $3

The state price cap could decline next week as benchmark rates drop in key areas

Oahu gas prices could go below $3 next week as recent decreases in mainland oil markets get factored into the weekly gasoline price caps set by the state.

The statewide average price first topped $3 a gallon on Sept. 6.

Weekly caps by the Public Utilities Commission are to be published later today.

The caps, which set the maximum price at which wholesalers can sell gasoline, are expected to be about 44 cents lower, according to Star-Bulletin calculations.

Hawaii's price cap is based on an average of spot wholesale prices in the Gulf Coast, New York and Los Angeles. Prices in those markets have steadily declined as production facilities in the Gulf Coast have recovered from hurricanes Katrina and Rita.

Analysts have predicted further price drops as demand for gasoline decreases.

Next week, if wholesalers charged up to the maximum allowed, the price for regular unleaded on Oahu is expected to cost about $2.93 a gallon after taxes. Prices would be about $3.05 a gallon on Kauai, $3.10 on Maui, $3.01 in Hilo and $3.03 in Kona.

The Star-Bulletin estimates include a dealer mark-up of 12 cents, although such mark-ups vary from station to station and are not governed by the price cap.

Some stations have priced gasoline above projected estimates.

Analysts say there could be several reasons for the higher prices. Most notably is that dealers may have suffered significant losses in weeks when consumers delayed filling up because of an anticipated drop in prices the next week. Other dealers may be keeping prices at a level mark anticipating large price swings from week to week.

Meanwhile, yesterday's statewide average of $3.45 a gallon for regular unleaded was still the highest in the nation, according to AAA's Fuel Gauge Report. Hawaii's price was 37 cents higher than runner-up Washington, D.C., and 58 cents above the national average, AAA said.

The Energy Department said yesterday that the average retail price of gasoline fell by 8 cents last week to $2.85 per gallon.

Hawaii's prices have lagged about a week behind mainland trends because of the pricing schedule. Price caps for each week are published the preceding Wednesday using data from the five business days leading up to the publishing date.

The upcoming decline in prices might only be temporary, though, as prices in the Gulf Coast and New York edged slightly higher yesterday.

Crude oil prices rose almost 3 percent yesterday on concerns that last month's sharp drop in gasoline demand would be temporary and that the supply of transportation and home-heating fuels would remain tight well into 2006.

"We believe the recent demand pullback is mostly a short-run response to a price spike, not a long-run shift in consumption patterns," Merrill Lynch commodity analyst Francisco Blanch said in a report.

Energy futures prices have fallen from the highs reached immediately after the hurricanes, but there are still considerable bottlenecks in the Gulf Coast's output of oil, natural gas and gasoline.

While refineries along the Gulf Coast are slowly returning to service, plants accounting for almost 3 million barrels per day of gasoline, heating oil and jet fuel output -- about 18 percent of total U.S. output -- remain shut or are operating at reduced rates. And as of yesterday, 70 percent of daily oil production and 60 percent of daily natural-gas production in the Gulf of Mexico was down, according to the federal Minerals Management Service.

The Star-Bulletin's gas price calculations are based on pricing information from Bloomberg News Service, which vary slightly from benchmarks published by the Oil Price Information Service that the PUC uses in determining the price caps. Price cap calculations using Bloomberg data have varied from the PUC figures by as little as a fraction of a cent and by as much as 5 cents.