Blame Goes Around for Surging Gas Prices

www.theledger.com Published Friday, February 21, 2003 By BRAD FOSS The Associated Press

The middle of winter feels more like the heart of summer at gas stations nationwide, as fuel prices surge past $2 a gallon in some places and motorists grumble about being gouged. When a gallon of gas costs more than a cup of gourmet coffee around the July 4 holiday, drivers chalk it up to industry greed during the peak driving season. Now consumers 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 retail price of regular unleaded has risen 56 cents since the beginning of the year to $1.66 a gallon. Meanwhile, wholesale gas prices have increased only 14 cents over the same period of time. That disparity is the source of ire for much of the public, while others accept high gas prices as a consequence of war rhetoric from the Bush administration. Earlier in the week, Sen. Charles Schumer, D-N.Y., called on the Federal Trade Commission to launch 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 American Automobile Association 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. Regardless of the reasons, Sunstrom worries that today's high prices could be a harbinger of even costlier fuel by the end of April. "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. Trucker Tommy Wimberly paid $280 to fill up his rig with 166 gallons of diesel in Camillia, Ga., or about a third more than a month ago. "I don't like the high prices, but I'm not angry," said Wimberly, 43, who expects prices to go even higher if the United States goes to war with Iraq. "There's nothing I can do about it," he said. As the public face of the industry, gas station owners are frustrated by accusations of profiteering, but they insist they're not the ones to blame. They say suppliers have been steadily upping their "rack" prices for weeks and that station owners are merely passing along the changes to customers 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 and other retailers attribute the rapid increases to "zone pricing," a phenomenon in which suppliers value their product based upon 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 haven't gone up. "People know they're getting gouged, but believe me, it's not from the dealers," Loeber said. For its part, the petroleum industry fends off critics at times like these 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.

Last modified: February 21. 2003 12:00AM