Hurricane Ike, other factors drive gasoline prices

Tuesday, September 23, 2008 | 8:17 p.m. CDT; updated 10:25 a.m. CDT, Wednesday, September 24, 2008

This story has been corrected to include Ron Leone's correct title.

COLUMBIA — After Hurricane Ike threatened the Gulf Coast oil industry a little more than a week ago, complaints of price gouging started rolling into the Missouri attorney general’s office.

John Fougere, a spokesman for the attorney general, said last week that his office had received 200 complaints about price gouging, mainly in Southeast Missouri.  Gouging is the unfair practice of marking prices above the market price to take advantage of an individual's hardships turned by extreme conditions, he said.

“Attorney General Jay Nixon has started an investigation,” Fougere said. “No legal action has been taken yet.”

In 2005, following Hurricane Katrina, the attorney general brought 11 lawsuits against gas retailers in the state. And after the Sept. 11 attacks of 2001, there were 48 lawsuits against Missouri gas retailers. In total, the state has received $69,000 in fines as a result, Fougere said.

AAA Missouri representative Michael Right said every attorney general “is looking to catch someone engaging in price gouging, but what they are really getting is consumer angst about paying higher prices.”

Chris Dwyer, who keeps track of petroleum prices , , said he noticed last week that the retail price he was paying at the pump was almost $1.30 above the reported wholesale price. . He said he wondered where the difference was coming from.

“I’ve been watching the wholesale price of gas for some time. This week as the wholesale went down, our price actually went up,” said Dwyer, who is the Libertarian candidate for the 19th District state Senate seat.

Typically, gas prices hover 30 cents to 60 cents above the wholesale price of gasoline. This past month, however, Missouri consumers have seen that number rising much higher.

The NYMEX, a source for contract prices in petroleum, does not reflect the current price of gasoline but offers an estimate of what the future wholesale price will be.

Retailers can change their prices depending on what they predict their next load of gasoline will cost in the future. The price of gas was $3.39 in Columbia at MFA, Sinclair and Philips 66 on Tuesday. Last week, prices approached $3.60 in Columbia days after Hurricane Ike struck. Although there was little damage to Gulf Coast refineries, it took days for them to start up again. Some have still not returned to full operation.

Right said consumers should see a gradual decrease in the difference between retail and wholesale gas prices, based on the current index for crude oil and gasoline.
“We are starting to see moderation in prices, but we’re not going to see it fall off the cliff anytime soon,” Right said.

Most of the difference between the wholesale gas and what retailers charge can be attributed to four components: retail mark-up, taxes, transportation costs and credit card fees, which are determined by a percentage of what retailers sell.

State and federal taxes account for 35 cents of the added price on top of the wholesale price. Transportation costs can add 2 cents to 10 cents per gallon. Retail mark-up is not directly fixed by the state.   

“As far as mark-up, there isn’t regulation telling retailers to make only a nickel above the price of a gallon,” Right said.

Ron Leone, executive director of the Missouri Petroleum Marketers and Convenience Store Association, said he doubts any price gouging occurred after Hurricane Ike.

“I check with my members, and they are doing the best they can with massive wholesale prices,” Leone said.    

Compared with the gasoline shortages in Texas, and many parts of the Southeast where a pipeline was completely shut down, Missouri’s gasoline was spared any large supply crisis. Still, the constricted supply in other areas of the country will affect prices in Missouri.

“Missourians fared pretty well,” Right said. “There were a couple of outages in the St. Louis area and other parts, but overall we’re in a good position.”

As the industry switches from a summer gasoline product to a winter product, consumers might notice a slight increase in price. Refineries start producing the different product in September, and it’s usually ready for delivery in October, Right said.

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