Gas Stations Make More Pennies on the Gallon

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Drivers are welcoming the continued drop in prices of gasoline, but the average cost of a gallon of fuel has only fallen about half as much as the price of a barrel of oil since both hit records during the summer.

Oil prices are down nearly 50 percent since July, to $74.50 a barrel. Gasoline nationwide, though, only is down 24 percent, to $3.13 a gallon, according to AAA Arizona.

Oil hit a record July 11 of $147 a barrel, and less than a week later, a gallon of gasoline hit a national record of $4.11.

Gasoline prices in Arizona spiked at $4.09 in July. They are down 22 percent, to $3.19.

With such a big spread between how much the price of oil has fallen and how little the price of gasoline has fallen, some experts predict further gas-price declines.

"Have plenty of faith you are going to see prices drop, and drop considerably between now and Election Day," said Tom Kloza, chief oil analyst for the Oil Price Information Service in New Jersey.

Retail gasoline prices have fallen to about where they were in March, but back then, oil was trading much higher, in the $100 range. Last time oil prices were as low as they are now was October 2007, and gasoline averaged about $2.80 a gallon, according to the U.S. Department of Energy.

While stations often lament tiny margins of a few cents per gallon of fuel sold, Kloza’s service reports that last week, U.S. stations averaged a margin of 42 cents per gallon.

"If you took this week and projected it out for 52 weeks, we’d all want to be in the retail gasoline business," he said. "The problem is, it is like a Yankee game where they score a lot in the ninth inning."

For example, for the week of Sept. 15, the average margin was less than 5 cents, according to his service. Kloza notes a "tape delay" between declines in oil prices and declines in gasoline.

"The myth is that when prices go up quickly, retailers are gouging, when in reality that is when they are suffering," he said. "When prices drop, retail prices don’t usually match those drops step for step."

One Arizona expert cautioned that the national figures don’t reflect the "highly competitive" market in the state.

"Retailers, a lot of times, are losing money," said Andrea Martincic, executive director of the Arizona Petroleum Marketers Association. "It is a very cyclical business for retailers."

She said the margin for gas stations in Arizona recently was less than 4 cents on a gallon, far from the 42-cent national average earlier this month.

And retail prices can’t fall as much as oil prices because taxes, distribution, marketing and credit-card fees all factor into the pump price of fuel regardless of oil’s price.

"I don’t know that there necessarily is a lag (between oil and gasoline prices)," she said. "You notice right away when the price goes up, but you don’t notice right away when it goes down. I’ve never seen any research to support that commonly held belief."

Gasoline prices also may get an artificial boost from oil companies cutting their output, said Judy Dugan, research director for Consumer Watchdog, a California non-profit group.

"They are trying to drop supplies to keep the price supported," she said. "Nobody can say what the future will bring, but the fact is that gasoline ought to be coming down almost as fast as oil, particularly with the drops in consumption we’ve seen."

U.S. drivers, in fact, have dramatically cut back. Data from the Arizona Department of Transportation show that the amount of fuel sold in August this year was 8.4 percent below August 2007.

If not for hurricane disruptions, experts said prices would be even lower today because of drivers’ cutbacks.

"If prices don’t fall further, then it really is time for government to get in on the act," said Dugan, whose organization advocates for more regulation.

Dugan said government intervention could help even out price fluctuations for consumers by requiring more transparency from oil companies, or by requiring a base level of supply.

"There is now a greater readiness (among the public) to believe that consumers are abused by enormous corporations, whether they are financial or commercial, especially by enormous corporations that sell us something that we can’t do without," Dugan said.

Some drivers who watch fuel prices aren’t optimistic they will continue to fall.

"I doubt it, really doubt it," said Bob Grubbs of Phoenix, who uses his Silverado pickup to escort oversize loads on cross-country trips.

He installed an additional 90-gallon tank in his truck to take advantage of the most inexpensive fuel he can find, which was at Van Buren and 32nd streets this week.

"When you see cheap fuel, you buy it," he said.

"A lot of people who do the same work I do don’t want to run a big tank in their truck, and they think I’m crazy," he said. "But if they are selling gas for $4 a gallon in California, and I can get it in Phoenix at that time for $3.50, when you buy 100 gallons at a time, it adds up."

Consumer Watchdog
Consumer Watchdog
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