Gas Retailers Lose Money with Record High Prices

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The Montana Standard

BILLINGS, Mont. — The price of gas is record high.

The oil companies are making record profits.

Tempted to take your frustration and anger out on the service station owner or employees?


The independent gas retailer on the corner is probably losing 2 cents on each gallon of unleaded regular flowing through the pump.

“The public can be incredibly nasty,” said John Smart, who has his Corridor Exxon on one of Billings’ busiest streets. On the other hand, he admits the public seems to understand the situation is out of the control of the dwindling number of those trying to make a living selling gas.

“Every small businessman is going out unless he has another niche,” Smart said. For him, the niche is selling tires and repairing vehicles.

“There is a tremendous shortage of trained technicians and mechanics,” he said. “That is our one bright spot.”

With two repairs shops — one at his gas station on North 27th Street, another in the old Frontier Chevrolet building — Smart employs nine repairmen.

Dick Skewis, who operates the Village Mart in Billings Heights, said he keeps his doors open with the income from the car wash, restaurant and casino, not the petrol.

When prices dropped a nickel last week from $1.99 a gallon to $1.94, Skewis figured he was losing a cent on every gallon sold.

“Thank goodness it’s only a penny,” he said.

Smart figured he was losing 2 cents with the price at $1.99.

Both men blame the situation on oil industry consolidation in the 1990s and its vertical integration — oil production, refining and retail marketing.

A recent study by Public Citizen showed that the top oil companies in America — ExxonMobil, ChevronTexaco, ConocoPhillips, BP and Shell — now control half of all domestic oil production, half of all domestic refining capacity and nearly two-thirds of the retail market. Public Citizen is a nonprofit, public interest organization founded 30 years ago by Ralph Nader.

Another study by the Foundation for Taxpayer and Consumer Rights, a Los Angeles consumer group, found those same five companies refine 90 percent of California’s gasoline and control the majority of its gas stations.

According to a May 24 article from Reuters news service, the average price of gas in the United States this year has jumped 50 cents to a record $2 a gallon on crude oil costs of more than $40 a barrel.

The article notes that energy analysts from Merrill Lynch report that the spread between the cost of oil and the prices received for gasoline have more than doubled the refining profit margins to a “record $19.50 a barrel.”

For Smart, his pricing structure is thus:

A tanker load of gas on May 19 was delivered for $1.49 a gallon. Add 47 cents for Montana and federal gas taxes for a wholesale price of $1.96. Smart was selling that for $1.99 a gallon.

However, more than 70 percent of his gas sales are paid with credit cards. The carrying cost, or interest charge, by the credit card company on the $2 gas now amounts to a nickel, which means he was lost 2 cents a gallon.

“That is not uncommon,” he said.

Another wrinkle in the pricing structure is that the credit card interest charge is levied against the total price, which includes the 47 cents for state and federal tax, said Lonny Averill, distribution manager for Stockton Oil Co. of Billings.

Averill said credit card fees amount to a 3.55 percentage charge on the gas taxes. Averill said an effort to get that changed by the Legislature was preempted by the credit card companies.

Skewis estimates credit card fees are costing him $ 3,000 a month.

“I am not able to pay myself that kind of salary,” he said.

“This is getting insidious,” Skewis said. “It just whacks away at the little guy’s profit margin.”

He said that prior to 1995, he was able to make 7 to 10 cents a gallon, but the consolidation of the industry and the oil companies marketing to hyper-markets such as convenience and box stores have cut the prices to the point of being a loss-leader for other products.

Averill demurs.

“The accountant in me says that you can’t sell something for nothing,” he said.

Averill noted, too, that Montana is a market island. “There is no finished product flowing into the state,” he said. The three refineries in Billings and the one in Great Falls produce it all.

For the distributor’s part, Averill said, “We would like to make 8 cents a gallon between the rack and the sale (to the retailer).”

The rack price is posted each day via satellite, he said, and is the price charged by the refiner when the gas is loaded onto the tanker truck.

Smart said the public needs to take into consideration the number of factors that contribute to the price at the pump.

The political tension in the Middle East, U.S. refineries producing at capacity, consumption at 104 percent of that capacity and cutting into storage, and new clean air rules for diesel have all contributed to the price run up. Smart said.

“Storage is at a 20-year low,” he said.

Smart said he expects gas prices to increase at least until July and then begin to back down. But the fallback will not be much below the current $2 a gallon, he said.

“There has been a lot of inflation pressure on the backside of gas for a long time,” Smart said. “It could go to $2.80 gallon if it is not suppressed politically.”

“The true law of supply and demand is working,” Smart said. “Consumption is more than 100 percent of supply. Demand is king.”

Consumer Watchdog
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