Four dollars and rising.
Soaring oil prices have pushed the
average price of premium gasoline in the Kansas City area past $4 a
gallon for the first time. Other fuel grades, including regular, appear
poised to follow.
Premium fuel stood at $4 or slightly more
Thursday on both the Missouri and Kansas sides of the metropolitan
area, according to AAA. The price for regular gas averaged $3.69 on the
Missouri side and $3.74 on the Kansas side.
But many gas stations
were charging a few cents higher than the average, and some were
selling regular fuel for $3.90. Diesel prices were even higher, with
the average as much as $4.54 a gallon.
Asked when, or if, prices will head lower, industry observers appeared to be at a loss.
seems to be no end to it. But obviously there will be,” said Neil
Gamson, an analyst for the Energy Information Administration.
Crude oil and fuel prices have been on a record run in recent weeks for a variety of reasons.
demand, particularly in rapidly expanding economies such as China and
India, continues to grow faster than supplies. There are ongoing fears
of supply disruptions in politically unstable countries such as Iraq,
Nigeria and Venezuela. Speculators hunting fast money are betting on
higher prices. And a weakening dollar, which is used to value oil
worldwide, also is pushing prices higher.
blends aren’t offering much relief. The rising price of corn also has
pushed ethanol costs higher. And when the lower energy content of
ethanol is considered, it’s an even worse deal financially than
AAA said the nationwide average energy-adjusted price
of E-85, a blend of 85 percent ethanol and 15 percent gasoline, is
$4.15 a gallon — higher than its pump price.
Rising fuel prices are beginning to affect gasoline consumption.
the early 1980s, when oil prices reached about $100 in today’s dollars,
demand declined 8 percent. Although such a dramatic decline has not
happened this time, gas demand this year is down 0.6 percent and is on
track for the first decline since 1991.
David Daniels of Overland
Park said the higher prices have already caused him to make some
adjustments, such as avoiding driving vacations.
“I’m retired and don’t drive much anyway,” he said. “But I do now try to combine as many trips as possible.”
bright spot, said the General Motors retiree, is that higher fuel
prices should create a market for electric and fuel-cell vehicles.
Edwards has a 90-mile round-trip commute and is reducing his speed on
the route by 5 mph. He’s also shopping on the way home instead of
returning to the store later. And he’s more often using the phone and
the Internet to visit with friends and relatives rather than making
High gas prices also changed his plans for the Memorial
Day holiday. “Not going to the big lake (of the Ozarks) this holiday,”
As painful as these prices may be for household budgets,
they are not as high as they would be if refiners were booking their
typical profit margins.
Last spring, when tight supplies pushed
gas prices higher, refining profits also soared. Gas prices later
declined after it became clear that supplies were ample enough to meet
This year it’s different. Refining profits for diesel are
up this year, in part, because of worldwide demand for the fuel. But
refining margins on gasoline are up only slightly, because of lower
Put simply, soaring oil prices have been the main driver behind the climb in gas prices.
it’s possible that refinery margins could still increase on gasoline,
it’s the cost of crude oil that will continue to have the biggest
effect on gas prices.
This month saw a surge in the price of West
Texas Intermediate, the U.S. benchmark, which increased $20 to $132.57
a barrel. On Thursday, about $2 of that was taken back, with a barrel
closing at $130.21. Wholesale gas prices also declined slightly.
some within the oil industry contend a correction is overdue, others
say growing worldwide demand for oil will keep prices up. One
prediction by a respected Goldman Sachs analyst already has oil
eventually going to $200 a barrel.
So, is there any good news for consumers? Perhaps.
least part of the recent increase is thought to have been fueled by
financial speculators. And some increasingly flustered market-watchers
remain convinced that the fundamentals of supply and demand simply
don’t justify $130 oil.
“Professional petroleum suppliers are
saying, ‘What the hell is going on?’ ” said Lewis Adam, president of
Admo Energy in Kansas City, which helps businesses, including gas
retailers, manage fuel costs.
Adam said there probably is enough
momentum in oil prices to at least briefly push gas prices past $4 in
the Kansas City area. But he has hopes for relief soon after Memorial
Day. He thinks oil prices could decline to about $100 — so instead of
instead of facing $4 gas, it’s possible we would have closer to
“It could be huge when it happens,” Adam said.
Consumer groups, trucking association want a ‘hot fuel’ fix
It’s warming up, and “hot fuel” is back in the news.
consumer groups and an organization that represents independent truck
drivers said Thursday at a news conference in Washington that with gas
prices at a record high, it’s high time to fix a problem that gives
consumers less energy per gallon because of temperature fluctuations
that change fuel volume.
Consumers “would be even more angry if
they realized they were paying ($3 billion annually) for gas they don’t
get,” said Joan Claybrook, president of Public Citizen.
prices, hot fuel can cost consumers as much as 10 cents a gallon,
according to estimates generated by the groups. Truckers stand to lose
about $1,200 a year.
Sen. Claire McCaskill of Missouri is pushing
legislation that would require gas retailers to make adjustments in the
volume of a gallon of fuel to account for temperature fluctuations.
Public Citizen were Consumer Watchdog, based in Santa Monica, Calif.,
and the Owner-Operator Independent Drivers Association, based in Grain
A survey shows that Californians could be overpaying as much as $3.4 million a day as heat makes gas expand.
Soaring gasoline prices are bad enough. But this summer, California’s
higher temperatures could add an additional 8-cent-a-gallon wallop
because pumping warmer fuel gives motorists less energy per fill-up.
"Consumers are paying through the nose for gas today, and they’re
really angry," said Public Citizen President Joan Claybrook, who at a
Thursday news conference urged consumers to back proposed federal
legislation that wouldrequire gas pumps to take account of fuel’s
tendency to expand in warm temperatures.
Because of the so-called hot fuel phenomenon, she added, this summer
"just about everyone will be overpaying for the gas that they
purchase." Claybrook said the temperature hit could cost customers an
extra $3 billion nationwide.
In fuel-hungry California, where the statewide average gasoline price
passed the $4-a-gallon mark Thursday, a new survey showed that
motorists could be overpaying by as much as $3.4 million a day during
the summer months.
"It’s a significant number, and one that we shouldn’t be paying," said
Judy Dugan, research director at Santa Monica-based Consumer Watchdog,
formerly called the Foundation for Taxpayer and Consumer Rights. "With
every rise in the price of gas, hot fuel becomes a more important
For consumers and companies struggling with their fuel bills, the added insult of a hot-fuel penalty is unwelcome.
"It irritates me because I don’t think it has to be that way," said Jim
Aasen, who owns Montrose-based Crestmont Appliance Service. Last year,
the monthly gas bill from all his house calls jumped to $425, up $100.
"When that happened… I raised my service call charge by $20," he
said. Now that $4-a-gallon gas threatens to boost his costs further,
Aasen said, "I might have to do it again."
The science behind the hot-fuel controversy isn’t in dispute. The U.S.
government defines a gallon of gas this way: At 60 degrees, a gallon is
231 cubic inches. But when fuel is warmer than 60 degrees, the liquid
expands, yielding less energy per gallon. When it’s colder, the fuel
Gasoline expands or contracts 1% for every 15-degree change in the
fuel’s temperature. Diesel volumes change 0.6% per 15-degree change.
The phenomenon — and the economic effects of it — is so well known
that U.S. oil companies and distributors track the temperature of the
fuel they sell one another and adjust the total bill to conform with
the 60-degree standard.
Gas stations and truck stops don’t have temperature-compensating
devices, so the pumps dispense each gallon as if it is flowing at 60
degrees — and the stations charge customers as if they are getting
There is nothing illegal about the practice. It’s been allowed for
decades by measurement regulators who assumed that retail fuel
temperatures stayed close to the government standard most of the time,
and that any losses from hot fuel in
the summertime would be offset by gains in the winter.
California’s new study, which sampled fuel temperatures around the
state during a 12-month period, found that gasoline temperatures were
almost always well above the 60-degree standard. The year-round average
temperature was 71.1
Calculating how much money consumers lose in the process isn’t easy,
though, because the amount of the overpayment depends on the
temperature of the fuel and the retail price of gas, and both are in
"It’s the equivalent of the grocer taking your meat into the back room
to weigh it and putting his thumb on the scale," said Dugan of Consumer
Watchdog. "With gasoline, everybody has their thumb on the scale."
Consumer groups and trucker organizations — some truckers have sued
oil companies over the issue — have urged state and federal officials
to force gas stations to install equipment that would rectify the
problem. The possibility is being studied in California.
Sen. Claire McCaskill (D-Mo.) introduced legislation in August that
would require all new and upgraded retail fuel pumps to be outfitted
with automatic temperature-compensation equipment.
In Canada, where cold weather would give consumers the advantage at the
pump, most fuel retailers were quick to invest voluntarily in the
devices. And Hawaii requires retail pumps to dispense fuel on the
assumption that it is 80 degrees instead of the standard 60 degrees.
A coalition of service-station retailers and truck-stop operators has
been fighting back, arguing that the equipment is expensive and that
there is no evidence that consumers are being cheated.
"If everybody has to put on temperature correction equipment… that
expense is going to be passed on to the customer in the price of gas,"
said Jay McKeeman, a vice president at the California Independent Oil
Marketers Assn., a trade group for gas station owners and others. "What
we don’t know is whether that cost to the customer will be offset by
the benefit. In our estimation and evaluation, it won’t."
The state has approved one temperature-adjusting device for sale in
California, and measurement rules allow any station to install the
equipment voluntarily. McKeeman’s group wants to prevent that too.
In February, his group wrote state measurement officials urging them to
"immediately adopt emergency regulations" to prohibit any retailer from
installing the temperature-adjusting devices.
Contact the author at: email@example.com
Rates May Rise 89 Percent
The California Public Utilities Commission has decided that the utility
supplying water to the tiny community of Casmalia can raise its rates
to produce an 89 percent increase in revenue.
Casmite Corp. was
granted the increase Thursday on 5-0 vote of the commission. There was
no discussion, according to commission staff.
Residents of the
community, many of whom are on fixed or low incomes, have been fighting
the increase that they say could push their water rates out of reach.
The utility company, which is owned by Chevron, has said the increase
is needed to cover the cost of operating the small, rural system.
was no immediate comment from the Casmalia Community Services District
following the ruling, but the board is planning a special meeting
Tuesday to discuss the decision, said Terri Stricklin, CSD secretary.
She noted that she is disappointed but not surprised by the ruling.
Casmite officials say the rate established by the PUC allows the utility to recover the cost of the system.
in a small rural area like Casmalia, the cost per customer is high due
to the high fixed costs and small customer base,” Brian Kelly, Casmite
vice president, said in an e-mail. “The only ways to alleviate the high
cost is to operate as efficiently as possible and/or to merge with a
larger agency or utility to create a larger customer base.
“Casmite has been pursuing both paths,” he added.
Casmite petitioned the PUC in October 2007 to raise water revenue by
138 percent, or $99,500 for 2008. However, PUC staff recommended a
phased in 89.73 percent increase, or $52,767, over the next three years.
to the PUC resolution, Casmite has been providing water for the
community of roughly 200 people since the 1940s, when the company began
oil operations in the area and constructed a water system.
1953, Casmite was purchased by Unocal, and the new oil company
continued to serve the nearby community as a “courtesy.” In 1994,
Unocal sold its oil fields in the area but kept the water system.
Unocal was purchased by Chevron in 2005, Casmite became a wholly owned
subsidiary of Chevron. In 2005, Casmite was certified as a public
utility and brought under the regulation of the PUC.
has six metered customers, including the community services district,
which then serves 52 residential and two commercial customers.
A Casmite official could not be reached for comment.
the issue in Casmalia, John Simpson, consumer advocate with the
nonprofit consumer rights group Consumer Watchdog, criticized Casmite
and its parent company for even seeking the revenue increase,
especially in light of record oil profits.
“We’re talking about
amounts that aren’t even pocket change for Chevron, but an 89.7 percent
water rate increase could kill Casmalia,” he said. “PUC regulations may
allow Chevron to do this, but that doesn’t make it right.”
Malia Spencer can be reached at 739-2219 or firstname.lastname@example.org]]>
They say oil and water don’t mix. Maybe that’s why Chevron
is so tone-deaf in its dealings with a small California town that
depends on the oil company for its water. Chevron, which inherited a
tiny water agency serving the Central Coast hamlet of Casmalia in a
merger, has asked to raise rates to a level that residents say
threatens the very existence of their community.
Chevron just posted record first-quarter profits of $5.17 billion on
top of a record profit of $18.7 billion in 2007. Now the Chevron-owned
local water company wants to raise water rates by 138 percent for its
52 residential customers in Casmalia.
The oil giant has told the Calilfornia Public Utilities Commission
that it deserves a “reasonable rate of return” on its midget water
company. Mainly, most residents suspect, Chevron wants out of the water
The Public Utilities Commission staff proposes a rate increase of
89.7 percent and a “9.01 percent rate of return” for the water company.
A resolution to enact that increase is on the PUC’s agenda for today’s
Even at the lower PUC rate proposal, town officials say the increase
will kill their community. “If this increase is granted,” wrote Bill
Ostini, president of the Casmalia Community Services District, “it will
signal the beginning of the end for us.”
Casmalia is 1.5 miles north of Vandenberg Air Force base. In the
early 1900s, the population was 1,500. It’s since dwindled to around
200, and the town is perhaps best known for the Hitching Post
Restaurant. From 1973 to 1989 the notorious Casmalia Resources
Hazardous Waste Facility operated a mile north of town. During the time
it was in business, the toxic dump received more than 4 billion pounds
of waste from around the Golden State. Fumes regularly blew into town
and sickened residents.
Those days are over. Now the site is the target of an EPA Superfund
cleanup, and Chevron is involved as a member of the Casmalia Steering
Casmalia gets its water from the Casmite Water Corp., owned by
Chevron. Casmite has provided Casmalia’s water since the 1940s, when it
had oil operations in the area. Unocal acquired Casmite in 1953, and
then Chevron swallowed up Unocal in 2005.
At a PUC hearing, company officials said that before 2005 the
company was not collecting enough fees to cover its costs. The execs
maintain that because the water company is under PUC jurisdiction, they
are required to recover costs through the rate structure.
They say annual revenue received from 52 residential customers must
rise from the current $72,700 to $173,000. That $100,000 increase is
huge to residents with a median household income that town officials
peg at around $30,000.
The current average household monthly water bill is $115. Under the
Chevron increase it would be $272. The 89.7 percent increase before the
PUC would bring the average to $217. Customers of other water systems
in Santa Barbara County pay $40 to $60 a month for similar amounts of
Certainly there has to be a sensible way Chevron can leave without
killing the community. Chevron needs to harness some of the vaunted
“human energy” touted in its multimillion dollar ad campaigns and solve
Here’s one possible way: Before leaving, Chevron should pay whatever
is necessary to get the water system in shape and do whatever else is
needed so it can be merged with a viable utility, one that’s actually
in the water business. Chevron should also set up a trust fund to help
subsidize the system for several years.
There is precedent for this. When Atlantic Richfield faced a similar
situation in New Cuyama back in 1977, it turned over the water system
and $1 million to the Cuyama Community Services District.
Merged into a larger water company, Casmalia’s rates could be spread over a reasonable customer base.
Ruining a little town to get out of a business that it wants to shed
seems beneath a company that has profited so handsomely from California
motorists, including those who live in Casmalia.
John M. Simpson is a consumer advocate with the nonprofit, nonpartisan Consumer Watchdog. E-mail email@example.com.]]>
While drivers are facing sticker shock at the pump these days, here is
a bigger shock: high prices are putting a strain on oil refiners.
After last year’s stellar profits, American refiners are going through
a traumatic period. In a time of record gasoline prices, some of them
actually lost money in the first quarter, and for virtually all
refiners, profits are down sharply.
Experts say the refiners are caught in a double bind. The price of
their raw material, oil, is rising because of strong global demand. At
the same time, consumption of gasoline in the United States is falling
as a result of slower economic growth and consumer efforts to conserve.
However much the companies would like to raise gasoline prices enough
to pass along the full increases in oil, analysts say they have been
unable to do it. Oil prices doubled in the past year, while wholesale
gasoline prices rose a mere 39 percent.
“Refiners are having a terrible time,” said Lawrence J. Goldstein, an economist at the Energy Policy Research Foundation.
For decades, global oil prices were tightly coupled to the ups and
downs of the American economy. But in recent years, world oil prices
have been pulled upward by heavy demand for diesel fuel from developing
countries like China. American economic growth weakened in the last few
months, but that has mattered little in the upward march of oil prices.
“What we see at the gasoline pump is increasingly driven by what is
happening elsewhere in the global economy,” said Daniel Yergin, the
chairman of Cambridge Energy Research Associates, a consulting firm.
Gasoline prices rose on Tuesday to a nationwide average of $3.73 a
gallon, according to AAA, the automobile club. That is yet another
record. Diesel prices also set a record, at $4.39 a gallon. Crude oil
futures closed at $125.80 a barrel, up $1.57, or 1.3 percent, on the
New York Mercantile Exchange.
In its latest monthly report, the International Energy Agency, an
adviser to industrialized countries, reduced its forecast for global
oil demand for this year, as consumption drops by a
bigger-than-forecast 300,000 barrels a day in the developed world.
But that decline will be more than offset by growth from developing
countries. Consequently, global consumption is expected to rise this
year by 1 million barrels a day, to 86.8 million barrels a day. Nearly
all that growth will come from China, the Middle East and Russia.
In the United States, there is no longer much doubt that consumers are
responding to higher fuel costs by driving less. Oil consumption fell
by 3.3 percent in March, compared with March of last year.
But even as gasoline demand softens, the price keeps rising, driven by
higher oil prices. The cost of oil represents about 75 percent of the
price of gasoline at the pump, according to the Energy Department;
state and federal taxes account for 12 percent, and refining and
distribution make up the rest.
The rising oil prices have led to a sharp drop in refining profit
margins, or the difference between the cost of oil and the cost of
gasoline. These margins, at $12.45 a barrel on average, are 60 percent
below their year-ago level, and in the lower half of their five-year
range, according to a report by UBS.
In response to falling gasoline demand and rising costs, refiners have
cut their production rates. Refining utilization rates, for example,
slumped to a low of 81.4 percent in the second week of April, compared
with 90.4 percent at the same time last year. Earlier this month,
refineries were running at 85 percent of their capacity.
All this has translated into a tough quarter for some refiners. While
large integrated companies, like Exxon Mobil, reported big profits in
the first quarter thanks to their oil sales, smaller independent
refiners that buy their oil, instead of producing it themselves, have
been losing money.
Tesoro, Sunoco, and United Refining all posted losses in the first
quarter. The hardest hit have been small refineries that tend to
process the most expensive types of crude oil into gasoline. Sunoco,
for example, lost $123 million in the first quarter, while Tesoro
posted a $82 million loss for that period, in contrast to a profit of
$116 million last year.
“We’re just not able to pass along the increased cost of crude oil on
the gasoline side,” said Lynn Westfall, the chief economist at Tesoro.
At Valero, the nation’s largest independent refiner, first-quarter
profit melted by 76 percent. Its refining capacity allows it to process
heavier grades of crude oil that typically trade at a discount. Still,
its profit dropped to $261 million in the first quarter compared with
$1.1 billion last year.
Some consumer advocates say they are deeply suspicious about the
behavior of refiners who are sharply cutting production at a time of
record gasoline prices.
“They are not sitting in a boardroom and colluding, but they can see
easily enough where their benefit lies, and it doesn’t lie in a price
war,” said Judy Dugan, the research director at Consumer Watchdog. “In
a truly competitive market, you might see some of these providers try
to improve their market share by reducing prices. But this is not
happening. They are all better off by restricting production to keep
Mark Cooper, director of research at the Consumer Federation of
America, said mergers in the 1990s had cut the number of refiners in
the country and contributed to reduced competition in the refining
“We let them accumulate market power through the wave of mergers, and
we’ve been paying the price in the last five years,” he said. “If there
is a small number of players in the market, they learn from each
The demand for diesel has been one of the main drivers of oil demand in
recent years. Diesel and other so-called middle distillates are used as
transportation, power generation and industrial fuels.
In China, for example, oil imports have surged in recent weeks, a
signal that the government is stockpiling oil and diesel in
anticipation of the Olympic Games. Beijing, the International Energy
Agency report said, is seeking to avoid a repeat of the embarrassing
fuel shortages and power disruptions that plagued the country last
BOUNTIFUL, UT — During the first week in May, Doug Olson sold fuel at a loss.
The co-owner of Slim Olson’s gas stations in Bountiful and Woods Cross
charged customers $4.25 for a gallon of diesel — despite purchasing it
from the Chevron USA Inc. refinery in Salt Lake City for $4.27 a gallon.
Regular unleaded was trucked into the station from the refinery for
$3.45 a gallon that week. Olson and his brother, the station’s
co-owner, Keith, priced it at $3.49, for a 4-cent-per-gallon profit, if
customers paid cash. But these days, most customers prefer paying with
credit cards, and the Olsons lose 2 percent on transaction fees —
roughly 7 cents a gallon — which resulted in a loss on regular gas.
"Do the math," Olson said. "Do you want to own a gas station?"
Record-high prices for a barrel of oil — which hit $123.53 Wednesday
for a barrel of sweet crude to be delivered in June — are not just
hurting drivers. Gas-station owners say they, too, are struggling
At a congressional hearing Wednesday on rising gas prices, the owner of
a petroleum distribution company in Texas told the U.S. House Judiciary
Committee that rising crude oil prices and stagnant gasoline demand are
combining to push some small gas stations into insolvency.
Utah gas-station owners blame credit-card transaction fees, the nature
of the gas market, rules specified by oil companies that gas stations
have to adhere to if they want to sell their brands, and overall
inflationary increases in the price of doing business.
International oil prices influence the price at the pump, because the
amount of oil available is largely controlled by the Organization of
the Petroleum Exporting Countries, which controls production of oil
based on supply targets the organization tries to predict. After a
barrel of oil is produced, it has to be refined before it is shipped to
But local competition also influences how gas stations set prices. If a
gas station owner charges more than the station across the street, the
owner could lose customers to the competing station. That’s the dilemma
at Slim Olson’s when they get a new shipment of gas that costs more
than the previous shipment.
"Do we raise it and really lose the market?" Doug Olson said. "Or do we lose money and price it a little lower?"
At Slim Olson’s — as with most gas stations — profits come from
popcorn, Cokes and hot dogs sold at the station’s convenience store.
Slim Olson’s also has a carwash that is a local favorite. Customers who
fill up at Slim Olson’s get a discount on a carwash.
But some customers are choosing to pay full price for the carwash and fill up at a cheaper station.
"Sometimes at Smith’s, you get a discount with groceries," said Ron
Day, who was waiting for a car wash at Slim Olson’s on a recent Monday.
For gas stations in southern Davis County, profits were squeezed when
Smith’s Food and Drug and Costco began selling gas about 15 cents
cheaper than traditional stations, Olson said. Traditional stations
struggle to compete with chain retailers, which have advantages of
being able to sell a diversity of products and more easily absorb
losses in gas sales.
Bill Douglass, chief executive officer of Douglass Distributing Co. in
Sherman, Texas, told the House Judiciary Committee on Wednesday in
prepared remarks that the average gas station makes 1.5 cents per
gallon and sells 4,000 gallons of gas a day.
"This means we generate about $60 in profit per day at the pump,"
Douglass said. "On average, convenience stores/gas stations in 2007 saw
an (annual) average pretax profit of only $23,335 per store, which
includes both profits at the pump and inside the store."
Credit-card fees on average are 7.9 cents a gallon, said Douglass,
former chairman of the National Association of Convenience Stores.
The cost of buying 9,000 gallons of wholesale gasoline has jumped 26
percent to $27,432 since 2006, according to the Oil Price Information
Slim Olson’s is a 70-year-old family business. The company gets income
from real estate, which right now is subsidizing the company’s gas
"No one ever talks about quality anymore," Olson said.
A spokeswoman for Smith’s was unavailable for comment this past week.
An executive in charge of gasoline for Costco Wholesale Corp., based in
Issaquah, Wash., did not return phone calls seeking comment.
Judy Dugan, research director of Consumer Watchdog, a nonpartisan
foundation based in Santa Monica, Calif., said a number of factors
contribute to a gas station’s success.
"It depends on their suppliers," she said. "It depends on how well run
the station is. They’re not going broke, most of them, but it’s the oil
companies that are making real money off $3.50 and $4 gas. The oil
companies own some of the largest stations."
But major oil companies own only 3 percent of gas stations, according to the National Association of Convenience Stores.
Other gas stations tend to be "at the complete mercy of their
suppliers," Dugan said. "We don’t see service stations closing left and
right, but it’s true they’re not the ones getting rich off of high gas
The big push on gasoline prices these days is the price of oil itself,
she said. "The oil companies and hedge funds are raking it in at our
expense, at drivers’ expense and the whole economy’s expense."
Some gas stations may be increasing the price of gas when they see
media reports that futures — oil purchased for a later delivery date —
have increased, Dugan said. "Others are responding to their latest
delivery. Refiners and the wholesalers who deliver to stations
sometimes (send) two price quotes that are different in the same day
from the same refiner."
Kevin Wilden has found his niche in a shop next to his Conoco station in Beaver in southern Utah.
He does light repairs such as oil changes and sells tires — although he
admits he’s not pushy enough to make a good living on tire sales. Four
gas stations sell tires in the southern Utah town, and Wilden found he
could be competitive selling tires for tractors and other farm
"It’s been a tough market," he said. "I’ve been here for 30 years. It’s been a tough market for 30 years."
Dave Archibald, who leases Jim and Dave’s Sinclair in Tremonton in
northern Utah, also has a light repair shop, which is the primary
source of income for the station.
"You’d have to sell a lot of Twinkies to try to cover the rent, and in our community, it just doesn’t happen," Archibald said.
He has run the station since 1969 and believes these days of high gas
prices are the toughest in his career. To keep other expenses low,
Archibald works in the shop every day, and his wife runs the
convenience store with the help of some part-time employees.
Archibald believes that if the oil prices would stabilize, he could get
some relief by not having to constantly raise prices at the pump. In
recent months, he has raised prices weekly. In more stable times, he
only had to raise the price every three weeks or so.
Michelle Corrigan, owner of Shady Acres Silver Eagle in Green River,
offers her customers a 3-cent-per-gallon discount on gas if customers
pay in cash.
Customers are increasingly paying with cash to get the discount, and
Corrigan is noticing more return customers in the east-central Utah
town near the intersection of U.S. 6 and Interstate 70. "They’re
actually starting to realize we’re trying to help them instead of
sticking it to them again," she said.
If customers pay cash, they have to pay inside the store. And drawing
them inside the store is also helping Shady Acres’ profits, because
people are buying more goodies.
"We have a really big convenience store, because with the fuel, you’re
basically making enough to pay for your lights and employees. We put a
Blimpie Subs and Salads in there to bring people in more."
Shady Acres is located in the middle of town, and three years ago,
Corrigan spent $10,000 on billboards on each end of town to advertise
the place, about the same time as the former Amoco station decided to
purchase gas from the Silver Eagle refinery in Woods Cross instead of
converting the station to a Tesoro Corp. station when the Amoco brand
"We decided to do that so we could have even cheaper fuel," she said.
"The fuel is the same, but when you go with a branded fuel, you’re
obviously going to pay a little more. We decided, looking into the
future, fuel seemed to be on the edge of skyrocketing, and we decided
to go with nonbranding."
Not being affiliated with an oil company brand has freed Corrigan to
advertise how she wants and offer the 3-cent-per-gallon discount to
cash-paying customers, she said.
With no end in sight to the rising oil prices, gas-station owners are
looking to such strategies to compete and survive. Doug Olson has a
hard time contemplating closing shop. His grandfather, Slim Olson,
began the company in 1937.
"Hope is what keeps you in it," he said.
E-mail the author at: firstname.lastname@example.org
Some gas stations in Arkansas raised regular by 20 cents overnight as
record-setting oil futures gave retail prices a hefty boost Thursday.
The record state average of $3.52 for regular trailed those pacesetters
but nevertheless has risen 28 cents in the past month, according to
AAA. Another record was set nationwide at $3.645.
Sleepy Hollow Store in Gentry was selling regular for $3.75 after
receiving a higher-priced shipment Wednesday, according to the owner,
who declined to say how much the price went up. Other stations were
selling regular for $3.65.
Even at $3.54 at a Wal-Mart station in Rogers, it cost Brooke Mudd $62 to top off her Chevy Tahoe.
Mudd said she has started planning her shopping trips to Wal-Mart more carefully.
"I try to do all my shopping for the week at one time rather than just run back to the store every day," she said.
Phil Flynn, vice president and energy analyst for Chicago-based Alaron
Trading Corp., said, "It seems like you guys are playing catch-up with
the rest of the nation." Arkansas saw increases of only about 3 cents
in the past two weeks, whereas many other areas saw 15-cent increases,
Gasoline prices are reflecting record-setting crude oil prices, which
closed Thursday at $123.69 per barrel on the New York Mercantile
"It’s all about the crude," Tom Kloza, director of the Wall, N.J.-based
Oil Price Information Service, wrote in an e-mail. "That is what is
driving it." Oil prices were buoyed after Goldman Sachs analysts said
this week they expect a severe spike in oil, with prices reaching
between $150 and $200 per barrel. The same analysts were the first to
make a strong case in spring 2005, when crude averaged about $50, for a
"superspike" to $105 per barrel, Kloza wrote.
But it’s a self-serving prophecy for a company invested in the futures
market, said Judy Dugan, research director for Consumer Watchdog, an
advocacy group. Markets went up 2.5 percent when the analysts made the
2005 announcement, she said. "It seems self-fulfilling, and it brings
more money into speculative markets," Dugan said.
"The price of oil has to be brought under control before gas can come
down," Dugan said. She said the White House and Congress aren’t doing
enough to try to bring the prices down.
The spot price for wholesale gasoline at New York Harbor, a price that
many gasoline stations use as a price index, went up 25 cents
Wednesday, said James Williams, an energy economist who owns WTRG
Economics near Russellville. The spot price, which was $3.19 Wednesday,
is an average price of what distributors pay to buy shiploads of
gasoline, and most gasoline stations adopted pinning their price to
that market to avoid charges of price gouging, Williams said. That
price is before the federal 18-cent tax and the state’s 21-cent tax,
plus transportation and retail costs.
That price is very sensitive to the crude oil futures market, Williams
said. There’s only a 20-day supply of gasoline in the United States,
and companies have to raise their prices to afford the next, more
expensive, load of fuel.
"The system doesn’t take as long to adjust as people think it does,"
Williams said. Prices go up or down based on a number of factors, he
said. "Over the long term, it generally averages out," he said. "It
tends to go down almost as fast as it goes up." The U.S. Energy
Information Administration this week revised its short-term energy
outlook upward, with a new average gasoline price nationwide for the
year up 16 cents to $3.52. The agency expects prices to peak this year
in June nationwide at a $3.73 average.
Kloza wrote at his Web log, blogs.opisnet.com, that because of oil’s
spike this week, prices in other states should average between about
$3.60 and $4, with the nationwide average topping $3.70 in the next few
If Goldman Sachs’ prediction of $150 to $200 per barrel of oil comes
true, nationwide gasoline prices should average between $4.30 and
$5.60, Kloza said.
"These are just general ballpark numbers, and don’t take into account
refining `events,’ hurricanes or other threats to U.S. refining
infrastructure," Kloza wrote. "The 2008 price rise hasn’t been about
the U.S., and it hasn’t been
about refining. It’s been focused on the perception — not necessarily
the reality — that crude oil could be in short supply as the year
progresses." He doesn’t think oil will go to $150, "but that’s more
hope than faith given what has happened so far," Kloza added by e-mail.
Information for this article was provided by Stacey Roberts of the Arkansas Democrat-Gazette.]]>
San Ramon-based Chevron said it expects
to spend the money over a three-year period from 2007 through 2009.
Over the five years from 2002 through 2006, Chevron spent about $2
billion on alternative and renewable energy technologies.
means Chevron expects to spend an average of $833 million a year from
2007 through 2009. That’s more than double the per-year average of $400
million Chevron plunked down from 2002 through 2006 on alternative and
"Ultimately, these projects have to make
business sense and bring in profits," said Alex Yelland, a Chevron
spokesman. "We are also looking for a leadership position in these
But some critics of the oil company were not impressed by Chevron’s spending program on alternative and renewable energy.
you take it as a percentage of profit, it does not amount to much,"
said Judy Dugan, a researcher with the Oil Watchdog online site.
the average of $833 million would amount to 4.5 percent of Chevron’s
annual — and record-setting — profit of $18.69 billion in 2007. And
the average of $400 million would have equated to 2.5 percent of the
company’s profit in 2006 of $17.14 billion — also a record at that
Dugan also is skeptical because she believes Chevron might not be
spending that much money on true renewable energy sources. She is
critical because the company does not specify how much is being spent,
separately, on alternative energy and renewable energy.
"Alternative energy could be liquid fuel
from coal, or gasification projects," Dugan said. "Alternatives are
often a code word for a different way to use fossil fuels. Chevron
needs to let us know what they are doing that is really green."
said it is investing in biofuel, geothermal, solar energy and hydrogen
fuel. Chevron works closely with AC Transit on programs related to
buses powered by hydrogen fuel, as well as diesel fuels derived from
soybeans and natural gas.
Kristina Johnson, a spokeswoman for the
Sierra Club, said it is about time for Chevron and other oil companies
to spend considerable sums on alternative and renewable energy.
energy is the future and fossil fuels are an outdated energy source,"
Johnson said. "The sooner we end our addiction to oil the better. This
has been a long time coming."
Executives at Chevron also pointed
out that the company scouts for alternative and renewable energy
technologies in ways other than direct spending. Chevron owns a venture
capital arm that invests in privately held startup companies.
than a few of these fledgling firms are engaged in research and
development of renewable or alternative energy. One example is
Oakland-based BrightSource Energy Inc., which has developed new
technologies to deploy solar energy fields.
operation looks for companies that have promising emerging
technologies," Yelland said. "They do play a key role in giving us a
position in this emerging alternative energy space. If you can get in
on the ground floor of these technologies, that can give you an edge."
Avalos covers jobs, economic development, commercial real estate,
finance and oil companies. Reach him at 925-977-8477 or email@example.com
Politicians are dying to get at more of Big Oil’s billions, but
analysts are torn about what that will do to prices or future energy
May 06, 2008
NEW YORK, NY — Politicians are eyeing oil profits like a fat juicy glazed ham.
With all the money Big Oil is making – the top five publicly traded
firms pocketed over $120 billion in 2007 alone – and with an election
on the horizon, it’s easy to see why.
The leading Democratic presidential candidates want a windfall profits
tax to do various things, and although their plans differ slightly they
generally want to use the money to give Americans a break from
skyrocketing energy prices and jumpstart research into renewable energy.
House Democrats have also warned of punitive measures if these massive profits continue at the expense of American consumers.
But while the politicians present their plans, analysts are far less
sanguine about whether or not a windfall profits tax would actually
help soothe steadily rising energy prices and spur R&D for
alternative energy sources.
A consumer rights group says that windfall taxes could actually raise
gas prices as oil companies might attempt to squeeze refinery
production to recoup their lost profit.
"It would have a fairly easy pass-through" to motorists, said Judy Dugan, research director at Consumer Watchdog.
Oil industry: Hands off our cash
The industry, of course, doesn’t like the extra profit tax.
"If our profits are taxed, that means we’ll have less capital to invest
in new production" and it could raise gas prices, John Hofmeister,
president of Shell U.S., recently told CNNMoney.com.
Oil companies have been investing more in new production lately, but
that argument is a little hard to swallow given the disparity between
the huge amounts of money the big firms have been returning to
shareholders versus the meager new oil discoveries.
Amy Myers Jaffe, a fellow in energy studies at the James A. Baker III
Institute for Public Policy just finished a two-year study looking at
oil companies and how they spend their money.
The study found that for the five big international oil companies –
ExxonMobil (XOM, Fortune 500), Royal Dutch Shell (RDSA), BP (BP),
Chevron (CVX, Fortune 500) and ConocoPhillips (COP, Fortune 500) –
spending on share buybacks went from under $10 billion a year in 2003
to nearly $60 billion a year in 2006.
Spending on developing their existing oil fields, however, went from
about $35 to $50 billion, while spending on finding new oil fields went
from about $6 billion to $10 billion.
"These companies are spending a very small amount of their operating
cash flow on exploration," she said. "They are spending the majority of
their funds buying back stock."
Finding oil: No cheap feat
Recently, oil rich countries like Russia and Venezuela have begun to
elbow out foreign companies in order to keep a larger portion of their
own energy profits. In the meantime, a shortage of skilled workers and
materials has hit the industry, making finding new oil is a challenge.
Oil analysts and the industry itself concede that this turn of events
makes it hard for companies to invest profits for new exploration
projects and must be redistributed to shareholders.
But it’s unlikely this scenario – high oil prices and limited access to
resources – will remain static forever, and it’s important for oil
companies to have access to cash when times change and exploration and
development are more achievable, said Antoine Halff, head of energy
research at Fimat in New York.
Fields in Mexico, Russia, Venezuela and other places are facing
production problems, and its becoming more likely that big foreign
firms will be called in to help, said Halff.
Halff said a one-time profits tax probably would have a negligible
effect on worldwide production, but a permanent tax would likely hamper
the hunt for oil in the future.
What about the Google windfall profits tax?
Analysts with energy consultants Wood Mackenzie agree with Halff’s
take, and introduced a more ideological reason for holding off on a
windfall profits tax.
"Do they want to take some from Microsoft too? How about hedge fund
managers," asked Wood Mackenzie oil analyst Ann-Louise Hittle, somewhat
It’s true that while the oil industry rakes in huge sums of cash in raw
numbers, the profit margin for the S&P energy sector, at about 10%,
is only slightly higher that the average for the S&P 500.
Google, by contrast, has a profit margin of 25%, yet no one is calling for a special tax on search engines.
Others say there’s a big difference between tech and oil companies.
"Their investment decisions affect you and I," said Jaffe. "If Google
doesn’t make the right investments, it doesn’t impact my ability to get
Jaffe also countered that the lack of access and manpower is no reason
Big Oil isn’t finding more oil now, saying her study showed the next 20
largest oil companies were investing far more in exploration, and
finding far more oil.
Government vs. the free market. While the debate about whether or not
to tax Big Oil’s profit rages on, there’s also the debate as to who is
best suited to bet on our future energy choices.
The oil companies have been criticized for being shortsighted and not
investing enough in renewable resources. Indeed, some want to use a
windfall profits tax to fund renewable energy projects.
The counter argument to government sponsored R&D is that when it comes to new technologies, the market picks them best.
"Can [the government] take this capital and do a better job investing
it than shareholders can," asked David Kreutzer, an energy economist at
the Heritage Foundation, a conservative think tank. ‘I’d say no on that
Dave Hamilton, director for global warming and energy projects at the
Sierra Club dismissed the notion that free markets are the best way to
solve the nation’s energy challenge, saying capital gravitates towards
what’s profitable, not what’s best for the nation.
"The oil companies are skimming the cream off the nation’s economy," he
said. "Look where’s it gotten us so far. I don’t think we’ve been
successful in the last seven years in solving our energy problem."