NACS Adds Retailer Voice to Gas Price Debate
WASHINGTON, D.C. -- Congressional Republicans and Democrats continue to play the blame game when it comes to rising gas prices. Today, Republicans called for more U.S. production, while Democrats focused on conservationism and the role of Wall Street speculators, according to media reports.
Amidst the debate, NACS testified as part of today's Congressional hearing.
In his submitted testimony, John Eichberger, vice president of Government Relations for NACS, said the association's members, "as the last link in a very long supply chain," have a better understanding of consumer frustration than others in the fuel system, and they often experience similar frustrations as they attempt to provide value to customers while generating a profit for their businesses. "My testimony today will address how retailers operate in a volatile fuels market and what can be done to stabilize conditions for consumers," he stated.
Of the convenience stores that sell fuel, Eichberger noted that 58.2 percent are owned and operated by companies that have just one store. And although 32 percent of convenience fuel outlets sell the brand of an integrated oil company, major oil companies own and operate less than 1 percent of the facilities. In general, he said "the retail fuels market is independent and entrepreneurial."
In terms of setting gas prices, Eichberger said the retailer is in a very difficult situation -- how to set the optimum price to attract as many consumers as possible to lift sales inside the store, while turning at least a modest profit at the pump. Their two-step process includes evaluating the competition and examining their costs. "Selling fuel at a high enough price to cover costs and generate a profit is not always possible because the wholesale cost of gasoline can change several times in one day, and not all retailers incur the same price change at the same time," he explained. "Typically, during periods of increasing prices, retailers operate at lower margins and may, in fact, lose money on the fuel they sell. However, when prices are declining, retailers have an opportunity to recover their lost margins and improve their profitability."
While retailers are doing what they can to provide consumers the best value at the pump, their influence over the ultimate price is limited, according to Eichberger, adding that there are some things Congress and the Administration can do to influence these other factors:
Improving access to crude oil products to supplement supplies; and
Abstaining from introducing any regulation that imposes added costs on the system, which will in turn, be reflected in elevated prices in the wholesale gasoline market.
"The best strategy for providing long-term relief and stability to consumers is to enact a comprehensive transportation energy policy. NACS does not believe that improved efficiency, enhanced sustainability, national energy security and economic growth are mutually exclusive objectives. But if they are not pursued in a strategic, coordinated effort, they can lead to unintended consequences that can derail progress toward all of the objectives and, in the end, consumers will endure the brunt through higher prices at the pump," he concluded.
Also testifying before the House energy panel today was Jack Gerard, CEO of the American Petroleum Institute. He told the panel the nation has vast energy resources that aren't being fully tapped. New leasing on federal lands is down by 44 percent, and the number of new wells drilled is down 39 percent, he said.
And while President Barack Obama calls for an "all-of-the-above" energy approach, he has threatened the oil and gas industry with billions of dollars in tax increases, Gerard said. "Mr. Chairman, this is sending the wrong message to the global markets. This needs to change," he said, referring to Obama's call to end tax breaks and government subsidies for the oil and gas industry that average about $4 billion a year.
Democrats claim oil production has increased since Obama took office and blame the recent spike in gas prices on tensions in the Middle East and speculation by Wall Street investors, according to a report by the Associated Press.
Oil prices rose above $105 a barrel Wednesday, up from $75 in October, because of diplomatic tensions with Iran, a major oil producer, and as U.S. economic indicators including employment have slowly improved over the last few months
Gas prices have jumped 48 cents since Jan. 1 to an average $3.76 per gallon, the AP reported.