SNHU economist sees some gasoline relief in crude price drop

The price of crude oil has dipped to its lowest level in eight months, but so far that lower cost hasn’t had much of an impact on the price of gasoline at the pumps in the Granite State.The cost of a barrel of crude was $81 on Wednesday, about a 20 percent decrease from a couple of months ago. The fall in price is due in large part to global economic uncertainty stemming in part from the U.S. credit downgrade.But Dr. Massood Samii, chair of the international business department at Southern New Hampshire University, said, “I don’t expect it to go much further down. Barring any major political upheaval, $80 to $90 seems to be a reasonable target, and that should lead to some decline in gasoline prices.”But, one might wonder, why doesn’t a 20 percent decrease in the cost of crude oil translate to a 20 percent drop in the price of gasoline at the pump?There are several reasons gasoline prices don’t correlate exactly with crude oil prices, said Samii, who before joining the SNHU faculty was a senior economist at OPEC.The cost of crude oil accounts for about one-third of the cost of gasoline at the pump, he said. The other two-thirds are a combination of factors – taxes, transportation and refinery costs, and profits taken at every step of the value chain, from wholesaler to distributor to gas station.For the most part, those costs are fixed, so a decline in the price of crude oil only decreases the price of gas by a fraction.In fact, by the time gasoline arrives at the gas station, wholesalers pretty much dictate the price that retailers charge, he said. Most gas stations make only a “minimal” profit margin – a few cents on each gallon sold, he said.Like the rest of the country, New Hampshire has seen a drop in gas prices from 2011 highs of nearly $4 per gallon in May. According to newhampshireegasprices.com, the average price of a gallon of gas in the state on Wednesday was $3.68. Over the next month, Samii predicts that the average cost will probably fall below $3.50 a gallon.”Probably we’ll see more of a decline (in gas prices) after driving season,” which ends Labor Day weekend, said Samii. Plus, it takes about 30 days for crude oil market prices to be reflected in gasoline and home heating oil prices. “Then, if the price (of oil) stays the same, we might see more of a decline in gasoline prices.”Samii doesn’t expect prices to fall much more than 15 or 20 cents a gallon.While that’s not going to be a huge drop, it’s actually not terrible news. While everyone likes seeing lower prices at the pump, too big of a drop isn’t necessarily a good thing, said Samii, “because that means we’re doing to have major economic devastation, and that’s a lot more dangerous.” — KATHLEEN CALLAHAN/NEW HAMPSHIRE BUSINESS REVIEW