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Summer shocker: Gasoline prices going down

It's the Memorial Day weekend, the summer driving season is upon us, temperatures are rising, and gasoline prices are heading . . . down?

It's the Memorial Day weekend, the summer driving season is upon us, temperatures are rising, and gasoline prices are heading . . . down?

Contrary to expectations that motor-fuel prices go up with the thermometer, gasoline and diesel prices have fallen in May, just in time for the holiday motoring season.

Nationwide, a gallon of regular gasoline averaged $2.79 last week, down from $2.91 on May 10, according to the U.S. Energy Information Administration.

Earlier this month, the agency forecast that retail gasoline prices would be stable, averaging $2.94 a gallon during this summer's driving season, up from $2.44 a gallon last summer, but substantially below the summer of 2008, when prices exceeded $4 a gallon.

Demand for fuel remains as tepid as the economic recovery. Despite the closure of its Eagle Point refinery in New Jersey, Sunoco Inc., the region's largest fuel supplier, says it is able to satisfy the market from its two remaining plants in Philadelphia and Marcus Hook.

"Demand is down from its historical levels in 2007," Thomas P. Golembeski, a spokesman for the Philadelphia refiner, said Thursday.

"There's plenty of product out there."

The main force causing fuel prices to decline was a slump in the cost for crude oil, the largest component to the cost of gasoline, said John C. Femy, the American Petroleum Institute's chief economist.

Crude-oil prices, which averaged $84 a barrel in April, slipped below $70 in recent trading, before rebounding in the last two days to close Thursday at $74.55 on the New York Mercantile Exchange. That amounts to a drop of 23 cents a gallon in the cost of raw material (a barrel contains 42 gallons).

Many factors are affecting the price of crude oil: The strengthening dollar, the Greek economic crisis, fluctuations in the stock market.

The International Energy Agency reported this month that worldwide stocks of petroleum were increasing and that so was oil production - a classic oversupply situation.

"Worldwide inventories are up, in a countercyclical way," Femy said.

The ruptured BP well spewing crude into the Gulf of Mexico has had little effect on prices because it was not yet producing. The oil spill has not affected production at other offshore platforms.

Current trends offer a little breathing room to beleaguered refiners - every fuel producer in the country, including Sunoco, reported losses in the first quarter.

In the first quarter, the average gross margin for refiners amounted to 21 cents a gallon. The "crack spread" increased to 33 cents this month, according to the petroleum institute's Femy.

But lately, the profit margin has been squeezed because it costs refiners more to produce gasoline for the summer in markets such as Philadelphia's.

To reduce pollution, refiners are required to reduce the evaporative quality of gasoline they sell in the summer.

That means reducing the amount of lighter hydrocarbons, which happen to be cheaper to produce.