Gas Prices: No Relief in Sight, Say Experts
NEW YORK -- First, the good news: U.S. gasoline prices may come down by a dime or so in the next month. Now the bad news: That's about as much relief as we're going to get.
A report in Fortune says that although wholesale gas prices have dropped from $2.10 a gallon to $1.98 in the last week, experts say still-tight inventories and reasonably healthy demand mean there will be no significant drop from retail gas prices of $3 per gallon or more in many parts of the country.
"Over the next few weeks, we may get a little relief," Larry Goldstein, president of the Petroleum Industry Research Foundation in New York, told the magazine. "But it's not likely to have any legs."
Refinery capacity is still limited, Goldstein explained, as are gasoline inventories. What's more, with refineries coming out of a long period of repairs and overhauls, the likelihood of an unscheduled shutdown or accident is much higher. "It's a tenuous balance," he said in the report. "There's still an asymmetric bias to the upside" -- in other words, it's easier for prices to go up than down.
Higher prices do seem to have cooled demand a bit -- the price per gallon is flat vs. a year ago, a shift from the historical 1.7 percent annual growth rate over the past decade. But given that the economy grew at a robust 4.8 percent in the first quarter, it's unlikely that $3 gas will lower demand enough to push gasoline prices back to $2.50 anytime soon.
"There's no major relief in sight," Jamal Qureshi, an analyst with PFC Energy in Washington, told Fortune. "The market isn't going to shift fundamentally this summer, and then we get hurricane season."
The pain isn't spread evenly. Retail gas prices averaged $3.33 a gallon in California and $3.13 in Washington state, according to the latest federal survey, vs. $2.85 in Texas and $2.87 in Florida. Refining capacity is tighter on the West Coast, especially in California, which uses a different gasoline blend than the rest of the United States.
Meanwhile, in Massachusetts at a State House hearing to address soaring pump prices, gas station owners urged legislative leaders to take a serious look at two ideas: lower credit-card fees and tougher penalties for gas thieves.
Twenty-six other states make drive-off gas theft a serious crime punishable by license revocation or $500 fines. But in the Bay State, stealing gas by driving away without paying is treated as any other shoplifting misdemeanor, said Paul F. O'Connell, who owns an Exxon station in Lunenburg and is a spokesman for the New England Service Station and Automotive Repair Association. A national convenience store chain estimated that $500 million worth of gasoline was stolen nationwide by drive-off thieves in 2004, and that could easily hit $1 billion this year, O'Connell told the Boston Globe.
Drive-off theft winds up costing consumers because station owners have to raise prices to recoup losses. But O'Connell would not predict how much a Massachusetts anti drive-off law could reduce pump prices. Also, his group doesn't know how many of the 2,700 Massachusetts stations still let people pump before paying or swiping a credit card.
Regular unleaded gasoline now averages $3.02 per gallon at Massachusetts outlets, according to the American Automobile Association.
Service station owners also deluged the Legislature's Joint Committee on Telecommunications, Utilities and Energy with complaints about credit-card processing fees that take 2.5 or 3 percent of each transaction. In many other countries those fees are as low as 1 percent, and state action to cap credit-card transaction charges could, at current prices, take 5 or 6 cents off the per-gallon price, owners said.
Gas stations' credit-card fees are comparable to other industries in the United States, but in some cases huge retailers can negotiate discounts that mom-and-pop stores can't get. Credit-card companies charge all retailers fees to cover costs such as handling transactions and recouping fraud.
John Tamvakologos, who owns a Mobil station in Boston's South End and a second Mobil in Stoughton, told the Globe he paid $30,000 in April alone in credit-card fees. ''You're working on a margin of just pennies, and that's coming straight out of your bottom line," Tamvakologos said. ''The credit-card fees are a significant problem."
''It's an interesting idea to cap the fee for gasoline transactions," said state Sen. Michael W. Morrissey, a Quincy Democrat and co-chairman of the committee.
But Morrissey told the newspaper he expected the state's ability to act might be ''pre-empted by federal legislation" that governs credit-card regulation.
Nessa E. Feddis, a senior counsel at the American Bankers Association, which represents most big U.S. credit-card issuers, told the Globe that the transaction fees gas station owners are complaining about ''are set in a competitive market," and countries that have lower fees can do so because of government regulations.
''A lot of station owners may not be focusing on all the benefits they get for those fees," Feddis said. ''If you follow all the rules as a retailer, you are guaranteed payment. Customers are more likely to fill up their tank because they don't have to worry about how much cash they have. And cash has costs: You have to worry about protecting it and being a victim of crime."
Rep. Brian S. Dempsey, a Haverhill Democrat who is co-chairman of the legislative panel, said he found the credit-card and drive-off proposals ''intriguing."
''We recognize that we're dealing with a global/national/federal issue, but we wanted to at least explore what could be some options for us to do whatever we can to help consumers cope with the spike in gas prices," Dempsey told the Globe.
Dempsey and Morrissey said they hope to get some relief passed during the remaining 60 days of this year's legislative session.
A House Republican proposal to waive the state's 21-cent-a-gallon gas tax for the summer is unlikely to go anywhere, however, Dempsey said. ''We've got to be very, very cautious," Dempsey said. ''That's a $200 million hit" for the state budget.
A report in Fortune says that although wholesale gas prices have dropped from $2.10 a gallon to $1.98 in the last week, experts say still-tight inventories and reasonably healthy demand mean there will be no significant drop from retail gas prices of $3 per gallon or more in many parts of the country.
"Over the next few weeks, we may get a little relief," Larry Goldstein, president of the Petroleum Industry Research Foundation in New York, told the magazine. "But it's not likely to have any legs."
Refinery capacity is still limited, Goldstein explained, as are gasoline inventories. What's more, with refineries coming out of a long period of repairs and overhauls, the likelihood of an unscheduled shutdown or accident is much higher. "It's a tenuous balance," he said in the report. "There's still an asymmetric bias to the upside" -- in other words, it's easier for prices to go up than down.
Higher prices do seem to have cooled demand a bit -- the price per gallon is flat vs. a year ago, a shift from the historical 1.7 percent annual growth rate over the past decade. But given that the economy grew at a robust 4.8 percent in the first quarter, it's unlikely that $3 gas will lower demand enough to push gasoline prices back to $2.50 anytime soon.
"There's no major relief in sight," Jamal Qureshi, an analyst with PFC Energy in Washington, told Fortune. "The market isn't going to shift fundamentally this summer, and then we get hurricane season."
The pain isn't spread evenly. Retail gas prices averaged $3.33 a gallon in California and $3.13 in Washington state, according to the latest federal survey, vs. $2.85 in Texas and $2.87 in Florida. Refining capacity is tighter on the West Coast, especially in California, which uses a different gasoline blend than the rest of the United States.
Meanwhile, in Massachusetts at a State House hearing to address soaring pump prices, gas station owners urged legislative leaders to take a serious look at two ideas: lower credit-card fees and tougher penalties for gas thieves.
Twenty-six other states make drive-off gas theft a serious crime punishable by license revocation or $500 fines. But in the Bay State, stealing gas by driving away without paying is treated as any other shoplifting misdemeanor, said Paul F. O'Connell, who owns an Exxon station in Lunenburg and is a spokesman for the New England Service Station and Automotive Repair Association. A national convenience store chain estimated that $500 million worth of gasoline was stolen nationwide by drive-off thieves in 2004, and that could easily hit $1 billion this year, O'Connell told the Boston Globe.
Drive-off theft winds up costing consumers because station owners have to raise prices to recoup losses. But O'Connell would not predict how much a Massachusetts anti drive-off law could reduce pump prices. Also, his group doesn't know how many of the 2,700 Massachusetts stations still let people pump before paying or swiping a credit card.
Regular unleaded gasoline now averages $3.02 per gallon at Massachusetts outlets, according to the American Automobile Association.
Service station owners also deluged the Legislature's Joint Committee on Telecommunications, Utilities and Energy with complaints about credit-card processing fees that take 2.5 or 3 percent of each transaction. In many other countries those fees are as low as 1 percent, and state action to cap credit-card transaction charges could, at current prices, take 5 or 6 cents off the per-gallon price, owners said.
Gas stations' credit-card fees are comparable to other industries in the United States, but in some cases huge retailers can negotiate discounts that mom-and-pop stores can't get. Credit-card companies charge all retailers fees to cover costs such as handling transactions and recouping fraud.
John Tamvakologos, who owns a Mobil station in Boston's South End and a second Mobil in Stoughton, told the Globe he paid $30,000 in April alone in credit-card fees. ''You're working on a margin of just pennies, and that's coming straight out of your bottom line," Tamvakologos said. ''The credit-card fees are a significant problem."
''It's an interesting idea to cap the fee for gasoline transactions," said state Sen. Michael W. Morrissey, a Quincy Democrat and co-chairman of the committee.
But Morrissey told the newspaper he expected the state's ability to act might be ''pre-empted by federal legislation" that governs credit-card regulation.
Nessa E. Feddis, a senior counsel at the American Bankers Association, which represents most big U.S. credit-card issuers, told the Globe that the transaction fees gas station owners are complaining about ''are set in a competitive market," and countries that have lower fees can do so because of government regulations.
''A lot of station owners may not be focusing on all the benefits they get for those fees," Feddis said. ''If you follow all the rules as a retailer, you are guaranteed payment. Customers are more likely to fill up their tank because they don't have to worry about how much cash they have. And cash has costs: You have to worry about protecting it and being a victim of crime."
Rep. Brian S. Dempsey, a Haverhill Democrat who is co-chairman of the legislative panel, said he found the credit-card and drive-off proposals ''intriguing."
''We recognize that we're dealing with a global/national/federal issue, but we wanted to at least explore what could be some options for us to do whatever we can to help consumers cope with the spike in gas prices," Dempsey told the Globe.
Dempsey and Morrissey said they hope to get some relief passed during the remaining 60 days of this year's legislative session.
A House Republican proposal to waive the state's 21-cent-a-gallon gas tax for the summer is unlikely to go anywhere, however, Dempsey said. ''We've got to be very, very cautious," Dempsey said. ''That's a $200 million hit" for the state budget.