• E-mail
• Print
• Comment
• Font Size
• Digg
• del.icio.us
• Discuss article

Some Gasoline Prices Dip Locally

Posted on: Wednesday, 7 September 2005, 21:00 CDT

Sep. 7--Gasoline prices started to decline sporadically from above $3 a gallon across the Twin Cities this weekend.

But the decline has hardly been universal. A smattering of stations still were charging more than $3 a gallon as of Tuesday afternoon, even though the day's average price in the Twin Cities had dropped to $2.86, according to AAA.

The disparity reflects a host of factors that contribute to retail gasoline prices, which are by far the most competitive part of the oil business. Whether a station is charging $3.20 a gallon or $2.74 depends on how much gas it sells, whether it faces nearby competition, how much inventory it has and when it was purchased and whether the station is affiliated with a large oil refiner or operates as an independent.

The overall price decline reflects the gradual recovery of refineries that were affected by Hurricane Katrina last week. Nine Gulf Coast refineries were closed as a result and petroleum plants as far away as Illinois were forced to limp along with a shortage of crude oil when a major pipeline from the gulf to the Midwest was shut down for several days.

Crude oil futures for October fell $1.61 Tuesday to $65.96 a barrel on the New York Mercantile Exchange. Crude futures had briefly topped $70 a barrel last week, fell $1.90 on Friday, when industrialized nations announced plans to supply the U.S. with 2 million barrels per day of crude oil, gasoline and diesel -- an amount roughly equivalent to 10 percent of U.S. daily demand. Gasoline futures plunged by 12.87 cents to settle at $2.055 a gallon on Nymex, but that still leaves them up about 7 percent since Aug. 26, before Katrina struck.

The Energy Department said late Tuesday that the retail price of unleaded gasoline skyrocketed by 45.9 cents last week to average $3.069 nationwide, a new record.

Now those prices are beginning to come back, but that doesn't happen all at once.

One of the key factors is inventory, said Gordon Klemp, vice president of news and information at DTN Energy, an Omaha, Neb.-based information service that follows the petroleum industry. Stations base their posted prices on how much they paid for the gasoline they're selling. If that gasoline was purchased at higher wholesale prices last week than the gasoline on hand across the street, then the station is at a disadvantage.

"You happen to catch a price move when you're full with inventory, you can't move as quickly," Klemp said. "They're stuck with a little high priced product. Generally speaking, that will roll itself out of the system in a couple days."

Another big factor is whether a station has a long-term contract with a big refiner, said Tim Hamilton, a consultant and executive director of a gas station owners group in Washington State.

When prices jump, wholesale prices for independent operators rise faster than for stations affiliated with a big refiner like British Petroleum. "The unbranded stations go up first and farther," he said.

Often, independent stations end up paying as much as 40 cents a gallon more than their branded competition, Hamilton said.

When wholesale prices rise, street-level competition makes it difficult for station owners to raise prices fast enough to keep pace. To make matters worse, gasoline tends to be purchased by credit card, and merchants get paid at a discount for card purchases. Given that gasoline prices have doubled over time to $3 a gallon, stations that used to eat 4.5 cents a gallon are eating a loss of 9 cents a gallon -- pretty much all of their margin, Hamilton said.

When wholesale prices fall, stations reduce their prices more slowly to recoup losses incurred during price spikes, Hamilton said. Thus prices differ on the way down with the varying financial states of individual stations.

But refiners make larger profits when gasoline prices rise because the difference between the cost of crude oil and refined petroleum widens.

News service reports were used in this story.

-----

To see more of the Pioneer Press, or to subscribe to the newspaper, go to http://www.twincities.com.

Copyright (c) 2005, Pioneer Press, St. Paul, Minn.

Distributed by Knight Ridder/Tribune Business News.

For information on republishing this content, contact us at (800) 661-2511 (U.S.), (213) 237-4914 (worldwide), fax (213) 237-6515, or e-mail reprints@krtinfo.com.

BP,

Source: Saint Paul Pioneer Press (St. Paul, Minn.)

More News in this Category