- The Washington Times - Monday, October 24, 2005

When pump prices skyrocketed after Hurricane Katrina, gasoline retailers were caught in an uncomfortable paradox — they were accused of gouging at the same time their profits were being squeezed by runaway costs at the wholesale level.

Now the reverse is true. The outrage from consumers and Congress has died down just as gas stations across the country are reaping some of their best returns at the pump in years by passing along huge savings at the wholesale level as slowly as possible.

“We just had a two-week period there with our best margins in two years,” said Bill Douglass, who sells Exxon- and Mobil-branded gasoline at 14 locations around Dallas and distributes fuel to 165 others.

Mr. Douglass and other retailers are benefiting from the spread between wholesale and retail prices, which now is nearly twice its normal size. Since the beginning of September, wholesale prices have fallen more than 40 percent, while retail prices have come down 11 percent, U.S. Department of Energy statistics show.

Nationwide, the average gross profit margin at the pump was 37.2 cents per gallon for the week ended Oct. 17, compared with 7.9 cents per gallon a year earlier, according to the Oil Price Information Service (OPIS) of Wall, N.J. OPIS said this sweet spot for retailers would only last “another week or two.”

The lagging decline in retail prices is not accidental and the industry is not apologetic about it. It’s important to “do some catching up,” Mr. Douglass said, because after Katrina, when wholesale prices spiked, many retailers — particularly those selling unbranded gasoline — lost money on every $3 gallon of gasoline they sold.

Despite the extra profits they have enjoyed in recent weeks, retailers said the real windfall is being collected in other segments of the industry.

Companies such as Exxon Mobil Corp., Chevron Corp. and BP PLC, which extract oil from the ground, refine it into gasoline, diesel and heating oil and then sell these fuels on the wholesale market, are indeed making bundles these days. And while these so-called integrated oil companies also sell fuel at the retail level, that is a small and shrinking segment of their business.

Of all the places to buy gasoline in the United States, less than 10 percent are owned by companies that produce or refine oil, according to the Department of Energy. That is down 50 percent from 1998, reflecting a concerted effort to shed these less profitable assets.

Exxon Mobil, the world’s largest publicly traded oil company, is expected next week to report an $8.9 billion third-quarter profit, a 56 percent increase from the year before. Similarly soaring profits are forecast for its rivals.

“That is where the money is going,” said Don Stephenson, president of Cary Oil Co. Inc., a North Carolina company, which owns 11 gas stations and distributes fuel to hundreds of others.

John Felmy, chief economist of the American Petroleum Institute, a trade group that represents major oil companies, said retailers were pointing the finger elsewhere because “nobody wants to be the villain in the story.”

“This is a cyclical business and so there is always someone in the supply chain who wins and someone who loses,” Mr. Felmy said.

A retailers’ share of gasoline revenue is “the smallest component of what customers pay for gas, but they are the ones that are under the spotlight and take the most heat, whether prices are rising or declining,” said Jeff Lenard, spokesman for the National Association of Convenience Stores, an Alexandria, Va., trade group.

Earlier this year, the trade group bemoaned the fact that retailers’ profit margins were at a 20-year low because of rising credit-card transaction fees and increased competition from Wal-Mart Stores Inc., Costco Wholesale Corp. and other discounters that sell inexpensive gasoline as a way to lure consumers into their stores.

Over the course of a year, gasoline retailers average gross profit margins of 10 cents to 12 cents per gallon. But in recent weeks, some have earned quadruple that amount, Mr. Lenard said.

The average price for regular unleaded gas declined 25 cents over the past two weeks to $2.66 a gallon on Friday, according to Trilby Lundberg, who publishes a semimonthly survey of 7,000 gas stations around the country. Meanwhile, wholesale prices per gallon range from $1.60 on the Gulf Coast to $1.75 on the West Coast.

“This weekend, gasoline retailers are probably going to have the best margins they’ve had all year,” said OPIS oil analyst Tom Kloza. “Yet people aren’t going to be particularly ticked off because they’ll figure ‘Hey, I only paid $2.50.’”



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