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High pump prices rattle drivers and businesses

Monday, February 28, 2011 | 11:31 a.m. CST
American flags blow in the wind outside a Gibbs gas station where a sign shows the new price of gasoline, Thursday in Topsham, Maine. Gasoline for U.S. motorists already costs more than at any point since 2008, despite ample supplies.

NEW YORK — High fuel prices are putting the squeeze on drivers' wallets just as they are starting to feel better about the economy. They're also forcing tough choices on small-business owners who are loathe to charge more for fear of losing cost-conscious customers.

Gasoline prices rose 4 percent last week to a national average of $3.29 per gallon. That's the highest level ever for this time of year, when prices are typically low. And with unrest in the Middle East and North Africa lifting the price of oil to the $100-a-barrel range, analysts say pump prices are likely headed higher.

Bryon Gongaware, an owner of The Floral Trunk and Gifts in White Bear Lake, Minn., didn't raise his $7 flower delivery charge when gas prices spiked in 2008, and he doesn't plan to do so this time, either.

"I don't think the economy is solid enough that you can be careless about raising prices," he said, standing among the flower clippings on the floor of the shop he has run for 21 years.

That means the extra costs that come from driving the store's delivery van 70,000 miles a year come from only one place: "right out of the bottom line," he said.

For drivers such as Robert Wagner, 51, a high school teacher from Thornton, Colo., the higher fuel costs mean cutting back on movies and dinners out for him, his wife and their two children. "We're very, very frugal right now," he said as he trickled enough $3.09-per-gallon gasoline into his Chevrolet Suburban to get him to his next payday.

Analysts and economists worry that by lowering profits for businesses and reducing disposable income for drivers, high gasoline prices could slow the recovering economy.

Over a year, analysts estimate, oil at $100 a barrel would reduce U.S. economic growth by 0.2 or 0.3 of a percentage point. Rather than grow an estimated 3.7 percent this year, the economy would expand 3.4 percent or 3.5 percent. That would likely mean less hiring and higher unemployment.

Americans are less prepared to absorb the spike in gasoline prices than they were the last time prices rose this high, in 2008, because unemployment is higher and real estate values are lower, said David Portalatin, an analyst for the market research firm NPD Group.

It has been four months since gasoline rose beyond $3 per gallon. During that time, drivers have spent $14 billion more on gasoline than they did a year ago, Portalatin said.

Diane Swonk, chief economist at Mesirow Financial in Chicago, said this year's cut in payroll taxes offers consumers a buffer against higher fuel prices. Still, she expects all but the wealthiest Americans to cut back on discretionary spending. And the longer prices stay high, the more damage they do.

Gasoline prices rose throughout last fall as the developing nations of Asia and the recovering economies of the West began using more oil.

In recent weeks, upheaval in the Middle East and North Africa stoked fears that oil supplies would be disrupted, and oil prices exceeded $100 per barrel for the second time in history.

Much of the most dramatic unrest took place in countries that are not big producers of oil. But when Libya plunged into chaos, there were disruptions in shipments of its high-quality crude, which is well-suited to making gasoline. That sent refiners scrambling to find other sources of high-quality oil. Gasoline prices rose further.

Gasoline prices typically fall in the winter and rise in the spring as refiners switch to more expensive summer blends of gasoline. Since 2000, prices in May have been on average 52 cents per gallon higher than in February, according to the Energy Information Administration.

Tom Kloza, chief oil analyst at the Oil Price Information Service, said that the normal seasonal rise in prices has been pulled ahead by events in the Middle East, but he still expects prices to rise further. He predicts prices will reach $3.50 to $3.75 per gallon, barring more chaos in the Middle East.

"When we get over $3.75, we are looking at very serious consequences for the economy," he said.

For every 25-cent increase in the price of gasoline, the nation spends an extra $3 billion filling up its cars and trucks, Kloza said.

For Jay Ricker, who owns 51 convenience stores in Indiana that sell gasoline under BP and Marathon brands, that's less money for the "affordable luxuries" he offers — cappuccinos and candy bars that people enjoy, but can do without. "I hate these high prices," he said. "People don't want to come in and buy something I make money off."

Drivers often get angry when gasoline prices spike for reasons that aren't apparent, such as refinery problems or overseas demand for oil.

This time, though, the dramatic news reports from the Middle East are making customers more understanding, said Scott Hartman, CEO of Rutter's Farm Stores, which owns 56 convenience stores and gas stations near Harrisburg, York and Lancaster, Pa.

"Whenever you see chaos in the Middle East, people expect higher prices, and this has been more widespread than most of us have seen in our lifetimes," he said. "It's quite clear our customers know what's going on."

That doesn't mean they like it.

When asked about fuel prices at a RaceTrac service station in Dallas, Shaun DuFresne tapped the screen on the pump, showing he had just spent $90.14 for diesel — at $3.50 a gallon — to fill his 2006 Ford F-250 pickup truck. Then he said something unprintable.

AP Writers Joshua Freed in White Bear Lake, Minn., David Koenig in Dallas, Andrew Duffelmeyer in Winterset, Iowa and Terry Tang in Phoenix contributed to this story. Sandy Shore reported from Thornton, Colo.


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Comments

Jack Hamm February 28, 2011 | 12:13 p.m.

"he said as he trickled enough $3.09-per-gallon gasoline into his Chevrolet Suburban to get him to his next payday."

"to fill his 2006 Ford F-250 pickup truck."

Maybe higher fuel prices will at least get a few people to stop buying these ridiculous and inefficient cars.

(Report Comment)
Greg Allen February 28, 2011 | 4:33 p.m.

Why don't they report what the oil company profits have been, and what they are projected to be with price changes? In the last decade, even when there were 'crises' that bumped up the price at the pump, oil companies have made record profits.

If consumers want to cry "Enough!" then they need the facts.

(Report Comment)
Derrick Fogle February 28, 2011 | 5:03 p.m.

Worldwide oil usage. Here's the graph: http://www.nationmaster.com/graph/ene_oi...

The US uses as much oil as the next 7 countries combined. Two of those countries, China and India, have a combined population about 9 times larger than the entire US.

Oil consumption from 2001-2007:

China: 5.6Bbbl/yr > 7.6Bbbl/yr = 65% increase
India: 2.2Bbbl/yr > 2.7Bbbl/yr = 22% increase
US: 19.7Bbbl/yr > 20.7Bbbl/yr = 5% increase

Crude oil price has gone up by 4X in last 10 years, BTW.

This is first and morst important reason why we need to get working on alternative energy and conservation right away. There's a population 9 times larger than ours on the other side of the globe that's increasing it's energy demand more than 10 times faster than we are. If you are a firm believer in open market competition, brace yourself for it. We've got 30 years until China and India are demanding as much or more oil from the market as we are.

(copied from the previous gas price thread, I'm moving here)

(Report Comment)
Mark Foecking March 1, 2011 | 8:03 a.m.

Greg Allen wrote:

"If consumers want to cry "Enough!" then they need the facts."

If consumers want to cry "Enough", they need to take simple, concrete steps to use less oil. We've had prices spikes and shortages off and on for almost 40 years now and our only response has been to double our oil consumption.

Oil companies make a large amount of money because people buy so much of their products. They make about 10% profit. Taking away their entire profit margin (even in 2008) would drop the price of gasoline only about 30 cents/gal.

You want to stick it to the evil oil companies? Use less of their products.

DK

(Report Comment)
Ellis Smith March 1, 2011 | 8:40 a.m.

@ DK:

Agreed, but somehow I doubt that the "evil oil companies" are cowering in some dark corner, frightened that consumers are about to do a "180."

I think we can safely believe that the primary concern of the "evil oil companies" at the moment is to keep the shaky supply chain from breaking down. You can't sell petroleum products if you have none.

(Report Comment)
frank christian March 1, 2011 | 9:42 a.m.

Greg Allen wants the facts.

3rd qtr 2010, oil and natural gas industry earned 6.%. Of 17 divisions Big Oil was 11th in % of profit. First was Beverage and Tobacco @ 20%, apparel and leather products earned 8.6%, All Mfg earned 8%. This from figures furnished U.S. Gov't, compiled by American Petroleum Institute.
http://www.api.org/aboutoilgas/upload/En...
Read it, goes in depth, is very interesting.

(Report Comment)
Jimmy Bearfield March 1, 2011 | 12:27 p.m.

Regarding profits, oil companies (e.g., Petroleo Brasileiro
PetroChina, Exxon Mobil) are among the most widely held stocks. Roughly half of U.S. households own stock. Put these two statistics together, and they add up to a good chance that a person decrying oil company profits and gas prices is profiting from those gains.

(Report Comment)

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