Speculating on pump prices is a gas, gas, gas

Column

Things have been pretty quiet around the cash registers at the Sunoco station Darryl Dorn has run since 2004. Clients line up to pay for beer or jumbo Icees and whatever they've nuked in the microwave and they don't say beans about the price of a gallon of gas, even though it's $3.59 for regular grade, and this week may be the last until after Labor Day that customers purchasing premium grade are able to fill up for less than $4 a gallon.

"It's almost like they've gotten accustomed to it," Dorn says.

Well, we'll see about that.

Gas-price forecasters predict a national average for regular grade above $4 by Memorial Day weekend, which seems a mite optimistic. If recent surges are any indication, it'll get there before Easter (April 8). And when that happens:

"They'll cuss us," comes a voice from behind one of the registers.

And that's provided Israel and Iran keep their powder dry. If a bombing war breaks out, the sky's the limit. (Not to mention that we'll have more pressing issues than the price of gas.)

Anyway, assuming the accuracy of conventional wisdom, this spring will mark the first time since July 2008 we've broken the $4 barrier (and we all remember how well that worked out). We scraped the $4 ceiling a year ago during an overhyped Recovery Summer II, demonstrating, again, how pump prices are guided as much by expectations and consumer sentiment as the supply-versus-demand dynamic.

As quickly as they soared, prices sank again, pessimism reasserting itself on the economic seesaw, but not before Washington's high-profile avengers swooped in to blame "speculators" (also known as "investors") trading futures contracts for the irrational spike.

Never mind that some of the so-called speculators were Big Transportation outfits such as airlines and trucking companies that require fuel-price predictability to set fares and delivery prices months down the road. Or that lots of the last-in speculators took financial baths when oil prices slumped in the second half of 2011.

"Trading Places," the 1983 film starring Eddie Murphy and Dan Aykroyd, provides a perfect primer for how futures trading can turn on a speculator/investor. In the climactic event, the pair buys dozens of contracts for frozen orange juice at one price then, at the top of the market, sell out. They bought low, sold high and scored big even though, like most futures traders, they never took physical delivery of the product. Latecomers — in this case, the corrupt Duke brothers — were ruined.

From his post at State Road 54 and Dean Dairy Road, Dorn has witnessed street-level speculating that almost cannot be believed. "The last time it went so high," he says, "we had people show up with 55-gallon drums. You know that's not safe." You also wonder how much four-buck gas Dorn's clients still had on hand when the price collapsed barely six weeks later.

At the time, panicked fuel-hoarders seemed to be onto something. It wasn't just how high the price rose, it was how quickly it got there. (Historians will recall that was precisely then-candidate Barack Obama's complaint.) And there seemed no end to it.

Rapid hikes — "Say 20 cents in the course of a week over a couple of weeks," Dorn says — spur talk of diabolical plots against the public. "Some blame the government," Dorn says. "Some blame the oil companies. Some say it's the Middle Easterners. Everybody has a theory."

As we prepare once more to rage against the petrovillains, given the available information, who wouldn't buy a season's worth of gasoline at next week's price and spend the summer drawing it down one tank at a time? But if you could, if you did, you'd be as guilty of speculating as FedEx and Delta. Feel evil? Yeah. Me neither.

Dorn can tolerate grumpy customers and their conspiracy theories so long as they understand he's not getting rich off the pain in their wallets. In fact, he nods and sympathizes. From a purely mercenary point of view, however, Dorn knows the pump price has risen insupportably high when his clients no longer top off their gas purchases with a case of beer, salty snacks and chocolate bars for the youngsters.

We're not there yet, and we're only speculating, but it probably won't be long. Best cover the kids' ears.