Industry expecting gas prices to take 'steady road down'

Hurricane Gustav shut down oil production and closed refineries along the Gulf Coast but did not devastate the industry the way Hurricane Katrina did in 2005.

Gasoline prices jumped about 20 cents a gallon in Missouri late last week, according to AAA of Missouri, but have since given up most of that gain.

And with the end of the summer vacation season, demand for fuel — already the lowest in five years in Missouri because of record high prices — should continue to slacken nationwide and prices are likely to fall, as they do almost every year at this time. Changing driving habits and lower demand are already having an effect in the trading pits, where crude oil prices are almost 27 percent below their July peak and gasoline spot market prices are down 24 percent since July.

But prices at the pump in Cape Girardeau, which in July stopped just short of $4 a gallon at stations near Interstate 55, are only down about 13 percent. The cheapest fuel available in Cape Girardeau on Wednesday was $3.43 a gallon, reported at several stations through the Web site www.gasbuddy.com.

A major local retailer and a representative of the Missouri Petroleum Marketers and Convenience Store Association said in separate interviews that motorists will continue to see lower prices as long as the trading markets sustain the downward trend.

But it takes time for lower prices at the New York Mercantile Exchange to reach the pumps, they said.

"The Merc is not where we buy our fuel from," said Keith Boeller, president of Rhodes 101. "We buy from local terminals and the pipelines in Paducah, Memphis and Cape Girardeau, and we are quoted a different price at each location."

Regular unleaded gasoline sold at $2.76 a gallon at the close of trading Wednesday. Missouri state and federal gasoline taxes add 35.4 cents per gallon. Adding in freight costs and fees charged by credit card companies that take 2 percent or more of each sale gives a more complete picture of the wholesale costs paid by retailers, said Ron Leone, executive director of the petroleum marketers.

The drop in the spot price of gasoline isn't being used to gain a windfall, Leone said.

"It is very rare that my members make a very reasonable and legitimate 10 percent profit," he said. "Gas is much lower than the average retail profit margin. If they are temporarily making that, I think that is great. But if you pool their margins over a period of time, my members typically make less than 10 cents a gallon."

Missouri average gas prices were $3.50 per gallon Wednesday, said Mike Right, a spokesman for AAA of Missouri. That is down from $3.64 per gallon at the beginning of August but up from the $3.42 per gallon average last Wednesday. The average price in Missouri peaked at $3.95 per gallon July 16.

The average price Wednesday means Missourians are paying the third-lowest price in the nation, Right said.

The downward trend should continue as long as wholesale markets are confident that tropical weather won't again disrupt supplies, Right said. "We are on a slow but steady road down, caused by a number of factors," Right said. "I think if we start to see that kind of pricing at the wholesale level, we should see that pass through to the retail level in five to 10 days."

Gasoline prices usually drop during September, according to figures supplied by Right. On Sept. 1, 2007, the average price in Missouri was $2.76 a gallon and fell to $2.61 per gallon by Oct. 1. In 2006, the average price was $2.61 per gallon on Sept. 1 and $2.02 per gallon on Oct. 1.

Major oil companies are reporting record profits every quarter, but those profits aren't part of the equation at retail outlets, Boeller said. "What we see is tremendous volatility, with 10- or 15-cent swings on some days. We have to find that trough that gives us a reasonable margin."

Sustained high prices are forcing motorists to cut back, a trend Right expects to continue. According to the Missouri Department of Revenue, through the end of July motorists used 68 million fewer gallons of gasoline and diesel in 2008 than they did in the first seven months of 2007 and 51 million gallons less than they did in the first seven months of 2004. That represents a 2.84 percent drop in consumption compared to 2007 and a 2.1 percent decrease compared to 2004.

Squeezed between higher wholesale prices overall compared to recent years and declining sales, many retailers are finding it impossible to stay in business, Right said. "I've seen a lot of retailers go belly up this year," he said.

Suggestions from some politicians for a fuel tax holiday would have little effect on the pump price, Right said, adding that a loss of the fuel tax revenue would jeopardize transportation projects. And he puts little stock in political promises to lower prices by finding a replacement for foreign oil supplies.

"We were supposed to become energy-independent, according to Nixon, and I don't mean Jay Nixon but Richard Nixon," Right said, referring to the first spike in oil prices caused by the 1973 Arab oil embargo. "And every four years we have these chest-pounders who come along and say we are going to be energy-independent. That is the biggest crock I have ever heard, but they are still using it."

rkeller@semissourian.com

335-6611, extension 126

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