Gas caps to shave 16 cents off price

Analysts say the trend of falling prices could be short-lived with expected increases this spring

For a second straight week, wholesale price caps on gasoline are expected to take a significant dip as analysts predict lower prices across the country.

However, traders said any relief would likely be short-lived, warning of an upturn in prices come spring.

In Hawaii the price caps on wholesale gasoline are predicted to drop about 16 cents, according to Star-Bulletin calculations. That would be the biggest dip so far in 2006, coming on the heels of a 10-cent drop in the caps this week and a 3-cent drop the week before.

"I believe that generally it has been working," said Senate Consumer Protection Chairman Ron Menor (D, Mililani), one of the chief authors of the gas cap law.

"However, I still believe that our pricing regulation can be strengthened and improved, so in that regard I look forward to having our committee consider the amendments I proposed to further lower the ceiling."

The proposed amendments are expected to be heard by Menor's committee in the coming weeks.

Among other adjustments, Menor's amendments would add Singapore to the three markets used for determining the price caps' weekly base line, and discard the highest market each week as a way to guard against price spikes in one region affecting Hawaii's prices.

Price caps are currently set by taking the average of spot wholesale prices in the Gulf Coast, New York and Los Angeles and adding fixed costs to account for operational costs and profit margins.

Other adjustments would remove a 6.5-cent zone price adjustment for Oahu and allow for different profit margins for different steps in the gasoline supply chain.

"I think the House is waiting to see what we're going to do on the bill," Menor said.

Support for the price caps could be wavering in the House, where 12 Democrats have endorsed a proposal to repeal the legislation.

Though the bill has not been scheduled for a hearing, House Speaker Calvin Say (D, St. Louis Heights-Wilhelmina Rise-Palolo Valley) has said there appears to be enough support in the House for a repeal.

Menor disagrees, and said he believes the cap will still be in place come May 4, when the Legislature adjourns.

"I still remain confident that the support is there in the Legislature to allow the continuation of it," Menor said.

The price caps represent the maximum price at which gasoline can be sold at wholesale in Hawaii.

If wholesalers charged up to the maximum allowed, the price at the pump is projected to range between $2.53 a gallon on Oahu and $2.90 a gallon on Lanai. The statewide average could dip to $2.70 a gallon.

The price projections include all taxes and assume a dealer markup of 16 cents, although such charges vary and are not governed by the price cap.

Meanwhile, yesterday's statewide average of $2.89 a gallon was 60 cents above the national average, according to AAA's Fuel Gauge Report, which bases its survey on credit card transactions from the previous day.

The drop in Hawaii's price cap comes as crude oil futures fell yesterday, and analysts said retail gasoline prices could soon dip below $2 a gallon in some parts of the country.

"We should see gasoline at the pump drop 15 to 20 cents in the coming weeks as it catches up with falling wholesale prices," said James Cordier, president of Liberty Trading in Tampa, Fla. "But if the economy stays strong, gas prices are set for a pretty big rebound in April and May."

Light sweet crude for March delivery fell 60 cents to close at $61.24 a barrel on the New York Mercantile Exchange as traders weighed lagging demand and bulging supplies against political tensions in major producing nations.

Traders remained concerned about the international dispute over Iran's nuclear activities and, to a lesser extent, unrest in Nigeria.