Profits don't always rise with gas prices

Contra Costa Times ^ | 2/25/6 | Blanca Torres and Clanci Cochran

[SmithL]

In the past several weeks, wholesale gas prices dipped to their lowest level since the start of the year, but retail prices have not fallen as quickly, according to data from the California Energy Commission.

This trend illustrates an odd part of the wacky world of gas pricing: Dealers make more money when gas prices fall, while they sometimes lose money as gas prices soar.

Retailers say they use falling prices to make up the profits they lose during times of higher prices. Drivers, however, have a more caustic view.

"It seemed like (gas stations) lowered the prices really fast to get people to buy" before increasing prices again, said Veronica Potts of Walnut Creek. "Like they know they can charge it, so they will. It's a good that everyone needs. They're going to charge you whatever they want to charge you regardless."

The state Energy Commission estimates that during the first week of January, after a runup in gas prices, retailers lost between 4 cents and 14 cents on each gallon of gas. That figure has changed to a gross profit of 12 cents to 20 cents a gallon in the past two weeks.

Research from the Oil Price Information Service echoes that data, finding that last week retailers nationally brought in an average of 20.7 cents per gallon of gross profit -- an 11 cent increase compared with a month before. Over the course of a year, retailers in the United States say their average profit is about 10 cents a gallon.

"It's not an easy thing for a retailer to make money," said Fred Rozell, director of retail for OPIS. "There are times when retailers make 20 or 30 cents per gallon and sometimes it goes below cost."

Retail prices usually rise within one to two weeks of wholesale price increases, but then take three or four weeks to fall after wholesale prices drop, said Severin Borenstein, director of the University of California Energy Institute in Berkeley.

"Station operators make money on the way down and lose money on the way up," Borenstein said. "What that doesn't mean is that they are getting rich or that they are ripping anybody off."

Wholesale prices rise and fall more erratically than retail prices because retailers can't change their prices as fast as the wholesale market moves, said Susanne Garfield, spokesperson for the California Energy Commission.

Gas station owners are under a lot of pressure, Rozell said. Sometimes retailers keep prices low despite higher costs to compete with other stations or draw more customers to their convenience stores, where they often make their real money, with profit margins near 35 percent.

Dennis Decota, executive director of the California Service and Automotive Repair Association, estimated that the state's gas station owners make 8 cents to 15 cents per gallon over the course of a year.

"You're lucky to make a 13 percent profit margin on gas," he said.

Station owners pay differing amounts for their gas depending on who they buy it from, Decota said. Retailers who operate branded stations such as Chevron or Shell pay a rate determined by those oil companies, while other retailers pay for gas based on market conditions.

"Gasoline is not a free market," Decota said. "It's very power-controlled by the oil companies and they are going to try to extract what the market will bear."

Many consumers are not aware of the complications station owners face, they just notice when their bills increase.

"According to the oil companies, it's all based on supply and demand. I see different," said Ray Borden of Concord. "The prices went down around Thanksgiving and Christmas. They want us to believe that the demand went down during the holidays? I don't think so." He said he also doesn't believe demand increased after the holidays.

Gas station owners say they feel squeezed between dealing with market fluctuations and keeping consumers happy while many consumers feel powerless.

"If you ask me, it's all a scam to just make us believe whatever they want us to believe," said Jackie Slack of Benicia. "We have to pay what the market will bear."

[SmithL]

"We have to pay what the market will bear", at least until the California (or Hawaii) Legislature repeals the Law of Supply and Demand.

[Paladin2]

Buy a Diesel, then you can easily, safely store fuel at home. Buy a couple of month's worth at a time and ignore fuel prices for a while.