Leaping Gas Prices Have Drivers Hitting the Brakes

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Gasoline pump pricesAs national gasoline prices shoot higher each day, signs of motorists rationing gas purchases have begun springing up around the country. The national average for a gallon of unleaded regular gas hit $3.37 on Monday. But In the key auto state of California, prices have already spurted past $3.75, which many analysts believe is a key threshold that could begin to hurt the U.S. economy.

Tom Kloza, chief oil analyst at the Oil Price Information Service, says he expects gasoline prices to keep rising into the $3.50 to $3.75 range nationally, with the peak likely to be hit between March 15 and May 15.

"There is a tremendous amount of money being made by people who are invested in oil," Kloza says. "There has been a panic among buyers, particularly in the speculative crowd."

"We Will Meet Any Shortage"


Crude prices appear to have stabilized on Monday, although rioting in Oman, the Persian Gulf's largest oil exporter outside of the OPEC (with about 880,000 barrels of daily output), made Middle East experts increasingly uneasy about the possibility that violence could spread next door -- to Saudi Arabia.

The markets have been in tumult since an uprising in Libya against the rule of Col. Moammar Gadhafi led to a sharp reduction in the country's oil exports, normally about 1.5 million barrels a day.

Saudi Oil Minister Ali Naimi told a forum in Riyadh on Monday that his country is prepared to use its spare capacity to substitute for oil production lost in Libya. "We have enough credence to tell you that we will meet any shortage," Naimi said.

While that has temporarily calmed international markets, it hasn't stopped the steep increase in prices at U.S. gas stations as retailers catch up to soaring wholesale prices. And consumers are feeling the sharply higher fuel prices, says Joseph H. Petrowski, CEO of Framingham, Mass.-based Gulf Oil.

"Less Discretionary Driving"

Petrowski says in Florida, where the company has 100 service stations from Boca Raton in the south to Orlando in the north, sales are down 3% to 4% after prices went up to $3.40 a gallon. In the Northeast, sales are also off, but to a lesser extent.

"When we asked managers what the reason was, the No. 1 response was less discretionary driving," Petrowski says. "That's usually a sign that instead of driving 20 miles to a restaurant, retired people are driving around the corner."

The average sale nationally has fallen from 11.5 gallons to 11.1 gallons, and customers are shifting from branded products to unbranded, he says. Another indicator that consumers are being hit in the pocketbook is that more sales are in cash rather than credit cards, which he says is a sign that credit is being maxed out.

"There are some small signs that rationing of gasoline is definitely going on," Petrowski says. "We're seeing signs of distress as the gas price goes to $3.30." But he adds that things still aren't as bad as in 2008, when prices hit $4 a gallon.

Petrowski says an increase to $3.75 nationally, as Kloza and other analysts predict, could impose a huge financial burden on many drivers. He says in Massachusetts, for example, the average family uses 1,500 gallon of fuel per year. At $3.75, a $1 increase over last year, the average family will be spending about 25% of its discretionary income on the gas hike, he says.

"I don't think the bottom 60% of wage earners can handle $3.75 gasoline without a serious cutback in their expenditures, and that to me is a problem," Petrowski says.

Don't Blame the Station Owner


He added that most gasoline retailers own five or fewer stations and have seen their profit margins fall from the range of 15 cents to 18 cents a gallon to under 10 cents. Most station owners gross about $180,000 a year but must pay labor and other costs.

"I think that's going to get cut in half for a period of time," he says. "If [the price of gas] were to stay there, there's no way you can run a modern site making only $90,000 on fuel. You really do need more income."

So don't get angry at the station owner. Get angry at the oil producers who are reaping their greatest profits in years. "Gasoline retailers aren't doing well under this scenario," says Kloza. "They like it when prices fall like a rock."

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