What's to blame for gas price spike?

INDIANAPOLIS (WISH) - Gas prices have skyrocketed in the past few days, in some places jumping 40 cents a gallon since Saturday morning.

The price at the pump Monday – an average $3.46 a gallon in Indiana - was higher than it’s ever been this time of year. A month ago, the average was $3.12. A surge in the price of crude oil is to blame. But there's more to it than that.

"Right now, we're at an 11-month high," said Indianapolis commodities broker Lannie Cohen, with Capitol Commodity Services, referring to the price of crude oil. "It's really a supply-based rally. Everybody's worried about future supplies."

But back at the pump, Scott Imus, who heads the Indiana Petroleum Marketers and Convenience Store Association, which represents some 3,000 gas stations and convenience stores statewide, disagrees with Cohen’s assessment.

"Supply is not the problem,” he said. “Demand is off. If you look year-to-date, it's down 5 to 7 percent in terms of demand. Demand is not the issue. The issue is fears of the unknown and what's going to happen in the Middle East."

Those fears, he said, are prompting speculators to bid the price up, pushing the price you pay at the pump away from simple supply and demand.

"If we were still using that as the sole yardstick, we would be much lower than we are today," Imus said.

Imus said sudden jumps – like the one that took hold over the weekend – are caused by retailers holding prices down a while after wholesale prices go up.

"There's always a lag between what retailers pay at the terminal and what they can charge their customers, and usually it gets pent up," Imus said.

In fact, Imus said higher gasoline prices hurt retailers.

"If you're spending $50 or $60 or $70 dollars on your fuel, you're probably going to be less likely to buy a bag of chips or soda, where we do have much more profitable margins than on a gallon of gasoline," he said.

Indiana retailers made about 8 cents a gallon profit on a gallon of gas last year, Imus said - much lower than the national average of about 20 cents a gallon.

He said he expects prices will peak at about $4.25 a gallon here by late spring or early summer. But Cohen said it could go much higher, if something happens in the Middle East or elsewhere in the world to interrupt supply.