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Gas station owners feeling ‘pain at the pump,’ too

No one wants to see gasoline prices fall more than gasoline station owners. That is the message Jerry Wilkerson, executive director of the Mississippi Petroleum Marketers and Convenience Stores Association (MPMCSA), wants to deliver. He contends that his members are feeling as much, if not, more “pain at the pump” than consumers.

“It’s killing them,” Wilkerson said. “There are numerous factors that impact the cost of gasoline. The higher gasoline goes, the more it hurts our members.”

Rising costs

There are certain factors that affect the retail price of gasoline, according to the MPMCSA. The cost to produce and deliver gasoline to consumers includes the cost of crude oil to refiners, refinery-processing costs, marketing and distribution costs as well as the retail station costs and taxes. The prices paid by consumers at the pump reflect these costs, as well as the profits (and sometime losses) of refiners, marketers, distributors and retail station owners.

Even when crude oil is stable, gasoline prices fluctuate due to factors such as seasonality, local retail gasoline competition as well as supply disruptions stemming from world events or domestic issues such as refinery or pipeline outages.

This all makes pricing gasoline a moving target, and operators cannot afford to miss the mark.

According to the association’s figures, the cost of crude oil accounts for approximately 44% of the cost of a gallon of regular gasoline. Taxes account for approximately 27% of the price, while refining costs and profits comprise approximately 15%.

The smallest percentage of the price is distribution, marketing and retail dealer costs and profits, which make up the remaining 14% of the price. Their costs and profits are the only area where operators have a say. The other 86% of the price is determined by entities and factors outside the operators’ control.

Operators are facing additional pressures, as well. Wilkerson lists off a number of other issues that are affecting price and retail operators’ bottom line. A few include:

• Rising inventory costs. Higher prices mean it costs more for operators to fill their storage tanks. Thus, Wilkerson said his members have much more inventory expense “in the ground.”

• Credit card fees. The convenience of paying at the pump with a credit or debit card is not free. Operators pay 2%-3% of the sales for card processing.

• Drive-offs. Most stations now require cash customers to pre-pay. Those that do not take a risk. Money is tight, which can lead to more customers driving off without paying, Wilkerson said. Operators pay state and federal taxes on the gasoline at delivery, and they have no way of recouping that money in the event of drive-offs.

Storm clouds

Hurricane Katrina taught some hard lessons, and Hurricane Gustav showed fears and uncertainties exist among the oil and gas industry as well as the driving public.

Lines started forming at stations across Mississippi well in advance of Gustav as consumers worried about shortages and/or higher prices. Suppliers ramped up deliveries to ensure an adequate supply. Despite this, the glut did lead to some stations running out of gasoline, but those were spotty and generally stations that ran dry were up and running again in less than two days.

However, the higher prices did come, and well in advance of the storm. It did not go unnoticed, particularly by Attorney General Jim Hood.

According to Wilkerson, Hood has made statements that he believes some operators ran up their prices ahead of the storm in a ploy to dodge accusations of price gouging. Wilkerson said that is totally false.

He said suppliers became nervous as Gustav approached and raised their prices, forcing operators to raise their pump prices accordingly. He said he has the paperwork to prove it, and invites anyone, including Hood, to look at it.

“I’m fixing to go to the Attorney General’s Office today,” Wilkerson said, then added — “won’t do any good.”

Wilkerson said the situation with Gustav was much less severe than with Katrina, though Gustav did severely impact refineries in South Louisiana and shutdown the Colonial Pipeline that feeds into Collins in Southeast Mississippi. However, at press time, Wilkerson said the refineries had regained power, and the pipeline was flowing again.

He added that this was important because, at press time, Hurricane Ike was in the Gulf of Mexico. He said that if the Gulf had seen another natural disaster before the refineries and the pipeline went back on line, it would have been a dire situation.

Silver lining

Wilkerson said it seems the oil and gas industry found the “magic number,” and it is “four” — as in $4. He said the recent soaring gasoline prices showed that consumers will tolerate prices up to $4 per gallon. Past that, they cut back, curtailing demand and, thus, lowering prices.

He believes the price will jump between $3.25-$3.75 per gallon in the short term, though adding that world events, natural disasters and other unforeseen occurrences could change that.

What Wilkerson stressed is that the price of gasoline is controlled by the same factors that set the price for other commodities — supply and demand. He said that his members are largely passive observers when it comes to gasoline prices, and added that consumers are the ones really in control.
“If you want to see the price of gasoline go down, quit buying it,” he said. “That is the only sure way to lower the cost of a gallon of gas.”

Contact MBJ staff writer Wally Northway at wally.northway@msbusiness.com.

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