Gas prices head unexpected direction

Story last updated at 5:02 a.m. Saturday, March 22, 2003 morningsun.net By Joe Noga Morning Sun Staff Writer

Gasoline is important to America. According to the Motor and Equipment Manufacturers Association, personal vehicles gulp up 115 billion gallons of gas and diesel fuel each year. And, Americans drive more than 2.6 trillion miles each year, enough for 14,000 round trips to the sun.

But, gas prices have always been a sore spot for consumers. Over a period of a month, the cost of a gallon of gas can fluctuate by as much as 15 cents or more. Some believed the war in Iraq would have a negative effect on gas prices for consumers, but, surprisingly, prices have actually gone down locally since the war began.

On Friday afternoon, the average price of regular unleaded gasoline was $1.59 in Pittsburg, down about three cents since Monday.

Mike Horton, owner of Horton's Pizza Plus, which has locations in Arma and at 1601 E. Fourth St. in Pittsburg, said he has no idea why gas prices are going down.

"I was just as shocked as anybody," he said. "We don't really know any more about it than anybody, we just happen to sell it. We were under the same impression that it was going to keep edging up a little more but then it went down a few cents this week."

Kristie Shepard, manager of Short Stop, 4002 N. Broadway, said she wasn't expecting prices to go down either.

"We are owned by a corporation. Our prices are set by what our corporation says," Shepard said. "I pretty much thought they were going to go up."

Shepard said customers were just as confused as she was when they saw the prices inching down.

"I think most of them expected prices to go up," she said.

Horton said he did not know whether or not the downward trend will continue, but added he sure hopes it does.

"I really don't know if they'll keep going down," he said. "Your guess is as good as mine. I would like to see the trend continue. People are happier when it is going down instead of going up. There is no way of knowing."

Horton said the price of gasoline fluctuates throughout the day but he tries not to get to involved in studying what prices will do.

"Whenever we get to a certain point in gallons we buy more fuel. I don't speculate. I don't look to try and buy it when it is less. When I get down to a certain point I buy fuel and whatever it is, it is. I wish there was some magical thing I could do but it doesn't work like that. I hope it keeps going down but I wouldn't count on it," Horton said.

Dan Shapiro, director of retail operations with Crescent Oil, sells gasoline to many local convenience stores.

Although a 30-year veteran in the business, Shapiro said he is no expert. However, he does understand why gas price fluctuate so much from week to week.

"We buy fuel on want is called a terminal rack price. Terminals buy gas at spot market prices. It's almost like the stock market in a way because the future prices are very important to the spot and rack prices," Shapiro said. "So, for instance, if there is a fear of something happening, the futures prices will go up, followed by the spot market, followed by the rack. The rack price, which is the price you pay at the pump ultimately, could go up on the fear of something happening, not on it actually happening."

Shapiro said that things like an oil strike in Venezuela and a refinery blowing up on the east coast will effect gas prices because supply is diminished.

However, he said events like this also effect the futures market because the futures market gets worried something might happen.

Shapiro said there are additional problems, but they don't always include how much oil is coming out of the ground.

"It isn't so much that there is a lack of oil coming out of the ground but that we don't have enough refining capacity," he said. "The refineries are operating at 95 percent, I'm told. That would be like running your engine at 95 percent for a very long time. So, any time there is a hiccup such as a fire at a refinery, it generates these ripples that go throughout the entire system."

But does this explain why gas can go from $1.55 to $1.65 overnight? Sort of, Shapiro said.

He explained that what typically happens is that the price gas stations pay for gas creeps up over time. Once the price reaches a certain point, one station will lead the way and raise the price, then others follow suit.

"You and all your competition are looking at each other, waiting for who will be the first guy to go up and who will follow," he said. "Everybody is trying to get gallons from each other."

Shapiro said that the opposite is also true.

"Let's say they are sitting at $1.55 and the rack price goes down to $1.47. Then the rack price goes down to $1.43 and all of a sudden they are making 12 cents per gallon, which makes up for the three cents per gallon they made last week. But then, because there is such high competition, someone will lead down," he said.

Shapiro said that the worst thing to happen in the gasoline industry are the big price signs which are displayed out front of gas stations.

"Think about it, do supermarkets put up giant milk price signs?" he said. "If you did then the price of milk would be as sensitive as fuel and people would drive another mile for a few pennies. If you can get the perception of being priced, then you have a leg up on the competition."