www1.tcpalm.com By Nadia Gergis Staff Writer March 16, 2003

Anthony Dalle isn't taking his family out to dinner anymore.

Cutting corners and watching the family's budget is becoming more of an obsession for the owner of Coastal One Maintenance in Stuart — all because of higher gasoline prices.

"Gas used to cost me $500 a month," said Dalle, who specializes in home repairs. "Then it became $700, now it is $1,000. I have to watch my expenses so much now."

Dalle, whose territory stretches from Wellington to Fort Pierce, is considering charging customers a 5 to 10 percent surcharge just to keep his business afloat.

"It makes me depressed, I don't know what is going to happen next," said Dalle, as he filled up his Ford truck Wednesday at a 7-Eleven in Palm City.

Dalle isn't alone is making adjustments to his budget and transportation costs. Soaring gas prices are causing more and more Treasure Coast and Palm Beach County residents to pinch their pennies and make fewer trips in their vehicles, especially drivers with sport utility vehicles and large trucks.

"I try to get rides to and from work whenever I can," said Kathy Santilli, a manager at the 7-Eleven who owns a Nissan SUV.

Prices for regular unleaded, self-serve gasoline on Wednesday shot up to an average of $1.70 per gallon — the highest ever recorded by AAA Auto South Club. That's 10.5 cents higher than the same date last month. Compared with a year ago, consumers in Florida now are paying 50 cents more for a gallon of gas.

Other gasoline grades also jumped in Florida. Mid-grade climbed 11.4 cents to a statewide average of $1.84 per gallon. Premium rose 11.6 cents to an average of $1.88, while diesel fuel rocketed 21.5 cents to an average of $1.89 per gallon.

Topping the state in prices at the pump was the West Palm Beach-Boca Raton market, where the average cost of regular unleaded was $1.78 per gallon.

Along Indiantown Road in Jupiter, service station gas prices for regular unleaded Thursday peaked at $1.85 per gallon at the Mobile station on the northwest corner of the intersection with Central Boulevard. Although the Hess station across the street offered a competitive $1.75 per gallon, the best regular gas prices on Indiantown Road could be found at the Circle K, 815 W. Indiantown Road, where a gallon could be purchased for $1.73.

"A combination of crude oil prices, low inventories, bad weather up north and the volatile situation with Iraq are making gas prices horrendous for consumers," said Gregg Laskoski, managing director of public and government relations for AAA Auto Club South.

The American Petroleum Institute says the lack of crude oil imports from Venezuela, one of the biggest exporters of oil to the United States, is the largest factor contributing to the gasoline price hikes.

"We had a supply disruption from Venezuela because of workers going on strike," said Bill Bush, a spokesman for the API. "Any severe disruption will affect crude oil prices."

Also contributing to the problem is the unusually cold weather gripping the Northeast and Midwest. Refineries, industry officials say, have been forced to stop making gasoline to produce more heating fuel.

And, to make matters worse, prices of crude oil might keep increasing, said Ron Planting, manager of information and analysis at the API.

"Retail prices usually lag behind crude oil prices, so who knows what we are in for in the future," he said.

That means motorists looking for relief may be in for a long wait.

"I think it's ridiculous that we have to pay so much, when the prices vary so much from station to station and state to state," said Jeanne Kruz of Jupiter. "It makes me wonder who is really controlling gas prices."

Harry Simmons of Palm Beach Gardens said the higher prices were making him rely more on his bicycle for quick trips to the grocery store and video rental shop.

"As these prices get closer and closer to $2, I find myself riding my bike instead of jumping in the car," Simmons said, as he propped his beach cruiser next to a bench at the Juno Beach Pier. "I can't even imagine how high the gas prices are going to climb once we start shooting over in Iraq."

Business writer Chris Kauffmann and staff writer James Russell contributed to this report.

www.sfgate.com Verne Kopytoff, Chronicle Staff Writer Sunday, March 16, 2003

Don't hold your breath for gasoline to get cheaper if and when oil prices tumble from near their 12-year highs.

Costs at the pump may rise like a rocket, but they fall more like a feather.

At least that's the view of some economists who have found a curious disparity in gas prices. Sudden spikes at the pump because of higher oil costs are usually followed by leisurely declines, their research shows.

"Firms are pretty quick to raise gas prices," said Severin Borenstein, director of the Energy Institute at UC Berkeley and co-author of one of the studies. "They try to hold onto them even when crude prices go down, until customers force them down by shopping around."

Borenstein and his co-authors found that a rise in oil prices is fully passed on to drivers in two to four weeks. But declines in oil prices take six to eight weeks to reach the pump.

For example, California's gas prices rose roughly in step with oil prices in the winter of 2000. But the pattern changed substantially when prices began to decline.

Oil dropped sharply during March. Gas prices, following the usual lag of up to a month behind oil, also began to drop, but far more gently, over two months instead of one.

A couple of somewhat similar examples occurred later in 2000.

It's too soon to say whether the current gas spike will follow the rocket and feathers theory. That will become evident only after oil prices decline significantly.

Gas prices have become a burning issue for drivers now that a gallon of regular unleaded has soared to record highs across the Bay Area. As of Friday, a gallon of unleaded averaged $2.27 in San Francisco, up 71 cents from a year ago, according to the AAA of Northern California.

The increase in oil costs is partly to blame amid tensions over Iraq and a worker strike in Venezuela. But local issues are also a factor.

In California, refiners are switching from making their winter blend of fuel to a summer blend, which causes less smog in hot weather. Production usually drops during these annual adjustments.

In addition, the state's refineries are changing from the smog-reducing fuel additive MTBE to ethanol. The retooling and the inherent properties of the new fuel blend add some extra costs.

At such times, consumers tend to suspect that they are being gouged. Indeed,

oil companies such as ChevronTexaco, based in San Ramon, usually have bigger profits when crude prices jump.

But the reason for prolonged high gas prices is complex, defying simplistic accusations of collusion. Researchers disagree on whether the rocket/feathers phenomenon exists at all and on whether anyone actually profits much.

It's unclear who first suspected that gas and oil prices sometimes get out of whack. What is certain is that a forest of trees has been felled on the topic by researchers who have looked at every step in the petroleum supply chain over a range of different periods.

Borenstein's study -- which used the Gulf War era of 1990 and 1991 as a model -- reveals a market that is out of kilter. And because of the imbalance, consumers end up paying a few cents more for a gallon of gas during periods associated with falling oil prices than they otherwise would.

Who's responsible? Borenstein said the price disparity arises between the time service stations buy gas from wholesalers and when they sell it to consumers. The service station owners, many of whom operate independently, resist lowering prices for the short run simply because they can, Borenstein said.

What allows this temporary latitude is that consumers don't immediately know where to find cheaper gas. Furthermore, drivers are confused by the frequency of changing gas prices.

"The retailers aren't absolutely competitive," Borenstein said. "It costs drivers money and time to shop around, so they don't do it."

Contributing to high fuel costs is the wholesale spot market for gas. Spot prices take up to two weeks to catch up with declines in oil, Borenstein said.

But he added that such a lag isn't unusual. Spot prices are equally slow to rise when oil gets more expensive, he found.

Eventually, gas prices catch up with the falling cost of crude oil, Borenstein said. The entire cycle then repeats itself during the next price spike.

Gas is not the only commodity whose prices sometimes become unbalanced when rising rather than falling. Others with similar tendencies include oranges, some fresh vegetables and some meats, according to various studies.

But John Felmy, an economist for the American Petroleum Institute, an oil industry trade association, disputed that gas prices fall within that category.

He said many researchers have in fact failed to find a lag in gas prices, or at least lags that have a financial impact on consumers.

Despite what consumers may think, the oil industry is not engaging in price gouging, Felmy said. Drivers, he said, are simply confused because they pay more attention to rising prices than declining prices.

"Prices going up generate such a visceral reaction in people," Felmy said. "Prices going down are a different story."

Felmy's more benign views of gas prices are corroborated by other independent sources. Among them are researchers from Texas A&M University, the Federal Reserve Bank in St. Louis and the Energy Information Administration, an arm of the Department of Energy.

All of them have found that fuel prices move in concert with oil or other parts of the petroleum food chain. The links in the chain sometimes do get tangled, some of them said. But it all evens out in the end, they say.

"It seems to wash out," said Michael Burdette, a senior analyst for the Energy Information Administration.

Borenstein agrees, to a point. He said that service stations make only modest amounts of money from the rocket and feathers phenomenon, not a bundle.

Service stations don't make as much money during spikes in gas prices, Borenstein said, but they recover those profits -- and a little more -- by cutting prices slowly when their supplies become cheaper.

In any case, Borenstein said the effect of temporarily higher gas prices on drivers is relatively minor. He said a typical driver spends only a couple of extra dollars because of unbalanced prices as a spike runs its course.

"In the grand scheme of things, this isn't a big deal," Borenstein said. "The fact that gasoline prices go down a little less than they go up doesn't cost that much money."

He said he's more concerned about limited competition among California's oil refiners, of which there are only seven major players.

Borenstein also said another problem for Californians is that these refiners are capable of producing only just enough to satisfy demand. If a few of the refineries are shut down because of an accident or maintenance, prices can skyrocket.

E-mail Verne Kopytoff at vkopytoff@sfchronicle.com.

www.indystar.com Ted Evanoff ted.evanoff@indystar.com March 16, 2003

DETROIT -- America's economic jitters were on display in February when oil prices rose and sales of new autos plunged 7 percent. Analysts now are trying to make sense of what might happen to the U.S. economy later this spring if American forces wage war in Iraq. Disaster scenarios suggest an economic recession if the war drags on and Iraq's immense oil fields are set on fire, reducing the volume of oil on world energy markets. Most forecasts, however, take a milder position. They predict crude oil, already at $37 a barrel on the New York Mercantile Exchange, could surge briefly into the mid-$40 range as war begins. Oil at $45 a barrel could push the price of gasoline at Indianapolis service stations to more than $2 a gallon from the current $1.73. Pump prices gradually would fall in a short war, experts say, as long as Iraqi oil still flows and Persian Gulf oil ports stay free of disruptions by terrorists. "You'll have a spike in the price over the first couple of days. But if we have Bush's rosy scenario, the price will come down 10 or 15 cents a gallon fairly soon," said Dennis O'Brien, director of the Institute for Energy Economics and Policy at the University of Oklahoma. What is more worrisome for Indiana's crucial auto economy than $45 oil is the prospect of a prolonged war that erodes the confidence of Americans. Consumers have kept the economy rolling for two years in large part by buying new cars and trucks at a rate of about 16.8 million vehicles annually. Brisk orders kept Indiana auto parts plants and most of the state's 92,000 autoworkers busy. But in the last week of February, real consumer anxiety appeared. Sales of new autos fell 7 percent to an annualized rate last month of 15.5 million vehicles. Half the sales decline traces to mid-month storms that kept shoppers home. That cost the auto industry sales of about 500,000 vehicles. Another 500,000 sales were lost as tensions over Iraq built among the United States, some traditional European allies and the United Nations, said economist Bob Schnorbus. "If it turns into a quagmire in Iraq, it'll play havoc on consumer confidence and business confidence," said Schnorbus, an auto industry analyst in the suburban Detroit office of the research firm J.D. Power and Associates. Schnorbus predicts auto sales will rebound and the industry will wind up with respectable sales of 16.4 million vehicles this year. The forecast assumes a short and successful war. "If that doesn't happen," Schnorbus said about a short war, "the risk of going into another recession is real." While consumers brace for what may come, they already have seen a rapid rise in gasoline prices since last year when crude prices dipped to less than $20 a barrel. Analysts contend the rise in pump prices has less to do with uncertainty over Iraq than the weather. "You have a bunch of I-can't-believe-it situations hitting all at once," said oil analyst Pete Stark of IHS Energy in suburban Denver. An unusually long spell of cold weather depleted natural gas and heating oil burned in furnaces. An unanticipated general strike in oil-producing Venezuela sapped deliveries. And oil companies failed to order enough crude oil for emergencies. "The oil industry has done a terrible job in terms of building oil stocks," said Anthony Cordesman, energy analyst at the Institute for Strategic and International Studies in Washington. Thin oil supplies tend to make gasoline prices jump erratically when oil traders sense a problem that could deplete supplies even more. But Cordesman shrugs off the notion of oil companies intentionally keeping supplies low. "People have been seeing conspiracies since the days of the elder Rockefeller, and that was probably the last time they were right," Cordesman said. "This is a business, a highly regulated business, where people operate with a great deal of transparency." What few in the industry expect is a shortage of oil if war unfolds in Iraq. Russia and OPEC, the Organization of Petroleum Exporting Countries led by Saudi Arabia, insist they will pump enough oil. Analysts figure the commodity price will drop back to an OPEC target range of $25 a barrel by next year. "Our feeling is that with any spike into the range of $40, the price would be short-lived," said Stark in Denver. In Indianapolis, wholesaler Walker Oil Services Inc. is keeping its diesel and gasoline tanks only one-third filled. Mike Walker said fuel prices should ease after the war begins. Then he'll restock fully. Until then, he doesn't want to be caught with full tanks. "If the price suddenly drops 20 or 30 cents at the pump, we can't charge our customers the old price we paid for the oil," Walker said. "We'd just lose money."

Call Star reporter Ted Evanoff at 1-313-417-9215.

www.galvnews.com By Laura Elder The Daily News Published March 16, 2003

As gasoline prices resume their upward march, League City business owner James Barry has to make a tough decision: Cut into profits or pass fuel costs on to customers. “Our strategy at present is to hold the line,” said Barry, president and founder of League City-based Doctor Cool & Professor Heat, a heating, ventilation and air conditioning company with eight trucks that need constant fueling. “I’m a member of Air Conditioning Contractors of America, and we speak back and forth about costs. Some of them are adding a fuel charge but at present, we don’t expect to.” Absorbing the rising fuel cost has to hurt. The bill to fill up his fleet has risen 25 percent compared with last year, Barry said. In January last year the company paid $456 to gas up trucks. This year, for the same month, Doctor Cool paid $570. Climb And Dwindle While Barry isn’t increasing prices, other companies say they can’t afford to absorb fuel costs much longer if pump prices continue to rise. And that would mean a double whammy for consumers, who are watching their disposable income dwindle with every gas price uptick. This week, after a short period of relative stability, the price for a gallon of regular, unleaded gasoline jumped to $1.609 in the area, which is 2.1 cents higher than last week’s level. The Texas average is $1.608, which is 2.1 cents higher than last week’s prices, six cents above the price last month and 43 cents higher for the same period last year. “Consumer demand for gasoline remains high, and inventories of oil and gasoline are very low,” said Carol Thorp, spokeswoman for the American Automobile Association. “Unless consumer demand goes down, it’s likely we’ll see higher pump prices for the next few weeks.” Gas prices closely track oil prices, which have been pushed up sharply in recent months (up more than 50 percent since mid-November) by generally falling commercial crude oil inventories in the United States, a colder-than-normal winter in the U.S. Northeast, which spiked demand, and continued fears that a war with Iraq could disrupt Middle Eastern oil supplies, say officials with the Energy Information Administration, an agency of the U.S. Department of Energy. Global Cause, Local Effect Consumers and businesses are getting a hard lesson in how global politics can cut into the bottom line. Vivian Dollar, a Pasadena resident who commutes to her League City job in a Mercury Mountaineer, said that before gas prices climbed, she was spending about $22 to fill the tank of her SUV. Now it costs about $30. “There’s nothing to do except complain, and no one is listening,” Dollar said. “You can’t give up going to work. As long as war is hanging over our heads, nobody really knows what to do.” War And Strife Oil markets fear that a U.S. war with Iraq, while Venezuelan oil exports remain far below normal levels, could strain the world’s existing spare oil output capacity (estimated at 1.5 million to 2 million barrels a day) to its limit, say EIA officials. Nearly all the excess capacity is in OPEC member countries, particularly Saudi Arabia (800,000 to 1.3 million barrels a day), the United Arab Emirates (350,000 barrels a day) and Qatar (110,000 barrels a day), all of which are located in the Persian Gulf. The International Energy Agency, the watchdog for major consuming countries, has said that OPEC lacks enough capacity to compensate quickly should there be a loss of Iraqi and Kuwaiti oil. In its monthly report, the IEA stated that the global oil system was “running on empty” and that a further supply disruption would “tax a system running close to capacity.” But Saudi Oil Minister Ali al-Naimi has said repeatedly he was confident OPEC and Saudi Arabia would deliver more oil in case of war in Iraq, say EIA officials. The Venezuelan Factor So far, mediation efforts have failed to resolve a strike in Venezuela, now in its fourth month. A prolonged strike in that country was meant to topple President Hugo Chavez. More than one-third of workers at Petroleos de Venezuela, the state-run oil company, were fired since the beginning of the strike, and won’t be rehired, Chavez has said. Venezuela is the fourth-largest supplier of crude oil to the United States. Iraq is the world’s eighth largest oil exporter. Big Shipment Crude oil prices fell Friday on reports that Saudi Arabia’s state-run oil company, Saudi Aramco, had chartered supertankers to carry an exceptionally large shipment of crude — 28 million barrels — to the United States for delivery in May. April contracts of U.S. light sweet crude tumbled by more than $2 a barrel Friday in New York before rebounding somewhat to close at $35.38, down 63 cents from Thursday’s close. Thinking About Rethinking Sandra Strickland, a manager at League City’s Galey’s Florist & Gifts, said eight out of 10 orders include deliveries. Galey’s has one van, and gives the driver about $40 to fill the up the vehicle’s tank twice a week. But that fuel allowance doesn’t stretch too far these days, Strickland said. As it stands, the florist charges about $7 for local delivery. And like Barry, Strickland doesn’t want to pass on fuel costs to customers. Two years ago, when refinery outages around the nation caused tight gasoline supplies to push up pump prices, Galey’s did raise delivery fees. If gas prices go much higher, the floral shop may have to again seek relief. “Every morning it seems like the gas prices are a little higher,” Strickland said. “If it gets to $1.75 a gallon, we’d have to rethink.” Debbie Roberts, owner of Stafford-based Executive Mail Couriers, does a lot of business with The University of Texas Medical Branch and Shriners Burn Institute. The courier transfers skin tissues to the institute at least twice a week. Executive Mail Couriers subcontractors have to pay for their own gas. “They’re screaming,” Roberts said. Two weeks ago, the company increased prices by 20 percent to help the drivers, charging $76 for a Houston to Galveston delivery. Pain At The Pump With nine shuttle vans and five minibuses traveling to both Houston airports daily, Galveston Limousine Service is feeling the pain at the pumps. Dispatcher Pat Kitchell has instructed drivers not to leave a airport without passengers, and to fill the shuttle vans to capacity. Galveston Limousine hasn’t raised its prices, Kitchell said. “We try our best to stay competitive with other markets,” he said.

www.hometownannapolis.com By EARL KELLY, Staff Writer As gas prices soar toward all-time highs, the average driver is spending an extra $42 a month to fill up the tank, AAA Mid-Atlantic said. Unleaded regular gasoline averaged $1.71 nationally -- just 2 cents under the record set in 1974. Statewide, unleaded regular sold for an average of $1.68 a gallon, AAA reported this week. A survey of area stations conducted by The Capital Thursday found that self-serve regular averaged $1.70 a gallon, as opposed to $1.66 in mid-February and $1.55 in mid-January. Gas costs about 52 cents a gallon more than a year ago. For the average driver who racks up 15,000 miles a year, the cost of refueling has jumped more than $1 a day in that time period, said AAA spokesman Deborah DeYoung. She said it appears that price increases are the natural outcome of a likely war with oil-rich Iraq and an ongoing oil-field strike in Venezuela. "We have not seen any evidence of price gouging but the situation really does not look good, especially for the economy. It was breathtakingly bad news," she said. Ms. DeYoung said industry analysts have warned that it could take the rest of the year for gas prices to return to what people consider "normal." Walter Thompson, president of the Maryland Motor Truck Association, said his members are paying $1.75 a gallon -- 35 cents a gallon more than in December. "It's causing many small companies to curtail -- or go out of business," he said. "The industry is hurting; many companies are trying to put fuel surcharges on deliveries." Rising trucking costs are likely to cause an increase in consumer prices, Mr. Thompson said. Jay Lowry, founder of Lowrys' Forest Drive Services in Annapolis, said motorists are coping by driving less and by buying only a few dollars' worth of gas at a time instead of topping off the tank. "Demand is down about 14 percent" compared to last winter. That's a significant percent," Mr. Lowry said. Dave Darden, owner of Gibson's Citgo in West Annapolis, said he sees customers buying lower grades when possible, a move that AAA encourages. "They look up there and see the price of (mid-grade) gas, and they put in the regular," Mr. Darden said. "And we don't make as much off regular as we do high-test." AAA offered additional pointers for coping with the gas crisis: Slow down -- Each 5 miles per hour over 60 is like paying an extra dime per gallon of gas. Consolidate errands -- More than 60 percent of gas is burned on trips other than than commuting to work. Maintain the auto -- Properly inflated tires and a tuned-up engine save 2 cents a gallon. Clean up -- take junk out of the trunk -- each extra 100 pounds costs 1 mile to the gallon.