Stations take a hit as gas prices rise
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By ROBIN PALMER Staff Writer - Published: April 10, 2005
A customer Monday asked Bethel gas station owner Dan McCullough where his new Mercedes was. With the high price he's charging for fuel, the customer assumed McCullough was getting rich.
About 30 customers a day make similar comments, McCullough says.
"I hear it all the time that I'm getting rich. Some of them come right out and say I'm ripping them off," says Albert Caron, owner of the Waterbury Service Station.
But station owners say they are feeling the pinch of high gas prices just like everyone else.
"The profit is not there right now, if that makes people feel any better," says Mike McDonough of McDonough's Fuel & Service Center in Brandon.
"We're losing money hand over fist," adds Tim Roberts, owner of Tim's Convenience Center in Plainfield.
It's up to individual gas stations to determine what to charge, but the bulk of the price is determined long before the gas reaches the local Mobil, Texaco, Citgo or Sunoco.
Industry experts say rising prices are the result of supply and demand for an unregulated commodity traded in a global market.
"Gas prices are mainly a function of whatever the price of crude oil is around the world," says Mike Shanahan, a spokesman for the American Petroleum Institute, an oil industry trade organization and researcher in Washington, D.C.
West Texas Intermediate crude oil — a type of crude oil used as a benchmark for pricing — averaged $49.77 a barrel for the first quarter of 2005, about $14.50 per barrel higher than the same period in 2004 and about $1.10 higher than projected, according to the Energy Information Administration, the statistical arm of the U.S. Department of Energy. Last week, the cost per barrel surpassed $57 and the administration projects crude oil prices to remain above $50 a barrel in 2005 and 2006, driving per gallon gas prices this summer nationwide to an average $2.28, up 38 cents from last year and 6 cents above last week's average $2.22 per gallon.
The crude oil cost represented 52 percent of the retail price of a gallon of gas in February (then at an average $1.91). State and federal taxes came in at 23 percent, refineries at 16 percent and distributing and marketing at 9 percent, according to the Energy Information Administration.
The price of crude oil fluctuates with demand.
"The truth is people keep driving more. We don't have enough refineries to meet the demand," Shanahan says.
U.S. refineries, which break down crude oil hydrocarbons into different products including gasoline, are operating at more than 90 percent of capacity, according to American Petroleum Institute. Shanahan says there simply aren't enough U.S. refineries. "Nobody wants a refinery in their backyard," he notes.
The United States remains the largest consumer of oil at nearly 21 barrels a day projected for 2005, up 1.7 percent from 2004, but other developing nations — namely China and India — are increasing demand globally. Energy experts say the two nations are using oil in manufacturing and vehicular travel.
Federal rule changes are requiring less sulfur in gas, so it burns cleaner, says Shanahan. But that raises the cost of gas production, he says. And the Organization of the Petroleum Exporting Countries seeks to control supply by producing only enough gas to keep the price high without sparking a recession.
By the time the gas is ready to sell to local gas stations, it hovers around $2.20. Or at least that's what Texaco charges at the Waterbury Service Center, Caron says. Through a weekly fax or phone call, Texaco tells Caron his cost per gallon.
Caron then tacks 5 cents on the regular per gallon price and pockets the proceeds, but those just cover his Texaco sign and pump rental fees, he says. It's the service station portion of the business that keeps it afloat, he says.
"We don't make any money on gas," Caron says. "I'm getting the same markup my father did in 1965 – 5 cents."
If the Mobil station down the street raises its prices, Caron will make 7 cents a gallon, he says.
Competition does affect price, say station owners, who get their gas primarily out of the Albany, N.Y., area from oil companies and distributors.
"It's based on what we pay for the gas, the trucking and the margins we want and what the competitors are doing," says Darwin Harder, the manager of four Sunoco stations in the Rutland area.
"It matters what the guy down the street is doing," agrees McCullough. He raised his price 11 cents above a competitor to $2.29 a gallon Monday morning, he says. By Monday afternoon that competitor's prices jumped from $2.18 a gallon to $2.27.
Roberts in Plainfield tries to keep his prices competitive with the Barre-Montpelier Road gas stations, he says.
Plainfield area residents will buy their gas in the Barre/Montpelier area if his prices are drastically higher, he says.
Station owners admit their prices don't always reflect what they paid for the gas stored in underground tanks, which may have been purchased weeks before.
But, Roberts says, it works both ways. McDonough's station is independent. It's not associated with an oil label, such as ChevronTexaco Corp., ExxonMobil, British Petroleum and Royal Dutch/Shell Group — the top four oil companies. McDonough buys gas wholesale — sometimes for more than he's charging at the pump.
"If the station next to me is $2.10, I can't go out and raise mine to $2.20 and expect to get any customers. You can't be drastically out of the ballpark, or they're going to drive by you," he says. He's now charging $2.209 per gallon in the cheaper Rutland market.
Some station owners say they'd like to charge more.
Caron says he would have to recoup 30 cents a gallon to meet his expenses. Roberts, who makes money off candy bars and sodas sold in his convenience store, would need about 10 cents a gallon to be profitable in the gas business, he says. Stations who rent their equipment, like Caron's, have more expenses than those who own station owners say, but gas prices also reflect equipment purchases and building maintenance. McCullough says his Bradford-based gas supplier paid for a $40,000 building repair, which he pays back through an elevated gas price.
The type of station also affects price. Station owners like Caron say Mobil and Texaco gas have more additives, such as lubricants and dewatering agents, that enhance vehicle performance. Those companies' prices also reflect the cost of marketing, mandatory employee uniforms and Mobil's Speed Pass, for example.
The biggest expense for stations, however, is credit card fees, the station owners say.
Roberts cites a 10-gallon gas sale as an example.
When prices were $1.40 a gallon just last year, Roberts made 7 cents a gallon, or 70 cents, off that gas sale. If the driver used an American Express card that charges retailers a 4.5 percent fee, or 63 cents, and Roberts' profit slipped. But today, it's much worse. That same 10 gallons of gas, at $2.25 a gallon, would cost $22.50 with $1.01 in fees, meaning Roberts loses money – more than 30 cents – on the sale, he says.
Gas station owners point to credit card companies, refineries, oil companies and oil producing nations as the ones who are profiting from soaring gas prices.
"Somebody's making money. It's not us," Harder says.
"Oil companies make money. Nobody's out to say that's not happening," acknowledged Shanahan.
But while demand is reportedly up, especially with the busy summer travel season approaching, stations owners say they're seeing sales drastically decline because of the high prices — another factor that hurts their bottom line, as customers who buy gas also purchase candy bars and sodas.
"We've been dying here, oh God, since November," says Caron. Last fall, Caron's small station was pumping more than 500 gallons a day. Now he's at less than 250, he says.
For those looking for gas price relief, station owners eyeing each others' signs for any chance to raise prices and eke out a profit paint a glum picture.
Roberts predicts local gas retailers will have to raise margins to make up for credit card fees.
McCullough predicts Vermont gas prices will double in three years as Chinese gas consumption continues to spike.
"We'll probably look back at the price today with envy," he says.
Contact Robin Palmer at robin.palmer@timesargus.com or 479-0191, ext. 1171.
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