Pain at the Pump
www.timesdispatch.com THE ASSOCIATED PRESS Feb 21, 2003
The middle of winter feels more like the heart of summer at gasoline stations nationwide, as fuel prices surge toward or past $2 a gallon and motorists grumble about being gouged.
When a gallon of gasoline costs more than a cup of gourmet coffee around the July Fourth holiday, drivers chalk it up to industry greed during the peak driving season.
But this winter consumers and others are accusing oil companies of taking advantage of the prospect of war in Iraq - an allegation the industry brushes aside as a conspiracy theory.
Gas station owners tell a more complicated story, explaining that today's high pump prices are partly the result of avarice, but not their own.
The average U.S. retail price of regular unleaded has risen 56 cents since the beginning of the year to $1.66 a gallon. Wholesale gas prices have increased 14 cents in the same period.
(In the lower Atlantic states, including Virginia, the average price of regu- lar unleaded gasoline at the pump was $1.595 in the week that ended Monday. That's up 20 cents from the beginning of the year, according to Department of Energy figures.)
While suppliers tack on costs for additives and transportation, the disparity is the source of ire for much of the public.
"This is ridiculous," said 20-year-old Jose Quiles, a tanning salon manager in Dallas who paid about $10 yesterday for a little more than 6 gallons of gas.
Earlier in the week, Sen. Charles E. Schumer, D-N.Y., called on the Federal Trade Commission to start an investigation of industry practices. "It appears as if price gouging is taking place across the country," Schumer said in a letter to FTC Chairman Timothy Muris.
The AAA supports Schumer's request. The travel company said it is also concerned about why prices have gone up so much in such a short period of time, though a spokesman stopped short of using the term gouging.
"We feel that most of the increase has been due to fear and speculation, rather than any change in the supply or demand for crude oil or gasoline," said Jeff Sunstrom, a spokesman for AAA. He worries that today's prices could be a harbinger of even costlier fuel before May.
"Watch out between April 15 and May 31," said Tom Kloza, director of Oil Price Information Service, a Lakewood, N.J., publisher of industry data. Kloza said the imports lost after Venezuela's oil workers went on strike in December have not been adequately replaced and that could be a problem when the weather heats up and demand rises.
Gasoline prices typically rise in the spring, when refiners shift from winterto summer-grade fuel. The switch to cleaner-burning gas requires shutting down equipment, scrubbing it clean and restarting it - a process that causes supplies to shrink and prices to rise even under the best conditions.
The public face of the industry - gas station owners - are frustrated by accusations of profiteering, but they insist they are not to blame. They say suppliers have been steadily upping their "rack" prices for weeks and that station owners are merely passing along the changes without any benefit to their bottom lines.
"I realize that the price of a barrel of oil has gone up tremendously, but the way that rack prices have gone up for the last two weeks is just not right," said Richard Loeber, owner of a Hess station in Union Beach, N.J. About 40 percent of the retail cost of gasoline is attributed to the price of crude oil, which has risen 19 percent since the start of the year to $36.79 per barrel.
Loeber said that Hess has raised the rack price by 16 cents a gallon in less than three weeks and that he has maintained his 8-cent-per-gallon margin.
Loeber and other retailers attribute the rapid increases to "zone pricing," a phenomenon in which suppliers value their product based on the highest level a particular market will bear. For example, if their customers' rivals are getting a nickel more per gallon at the pump, they will set their rack price accordingly, even if the supplier's costs have not increased.
"People know they're getting gouged, but believe me, it's not from the dealers," Loeber said.
The National Association of Convenience Stores, which represents about 100,000 sellers of gasoline, says its members are especially unhappy about the high gas prices because they detract from sales of soda and chips.
"Our members make more off a 12-ounce coffee than they do off a 12-gallon fill-up," said Jeff Lenard, the group's spokesman.
For its part, the petroleum industry fends off critics by pointing to higher oil prices. The surge has mainly been attributed to traders' fears of supply disruptions in the event of a war in Iraq and the impact of the Venezuelan oil strike.