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Friday, September 02, 2005

Many factors affect gasoline prices

As the price at the pump tops $3, consumers want to know whom - or what - to blame.

Exorbitant prices at gas pumps in Roanoke raises the question of whom or what to blame.

Many are pointing to Hurricane Katrina as the reason for jumps in prices. The traditionally higher prices during Labor Day weekend are creating a double whammy.

But Steve Walker, who bought gas Wednesday, is not buying any excuses.

After all, he reasoned, much of the gasoline on which prices are being raised was already stored at some stations before the increases of the last 48 hours began. He cited Kroger at Lakeside, which increased its price of regular gas from $2.51 a gallon to $2.82 in less than an hour Wednesday morning. Prices have soared to more than $3 a gallon in some locations. He doesn't fault Kroger for wanting to make a profit, but "using the hurricane as a pretext to cover your greediness is just plain wrong."

A Kroger spokesman said he didn't know when the gas that was being sold Wednesday morning was delivered, although he said shipments arrive daily.

"We're doing everything we can to get the best possible price for our customers," added the spokesman, Carl York.

But whether the gasoline arrived at stations on Wednesday, or days ago, Katrina nevertheless looms as a convenient villain.

Gulf of Mexico oil production was reduced by more than 1.37 million barrels a day as a result of Katrina. That's equivalent to about 91 percent of daily Gulf production, according to Minerals Management Service. Thus prices at many gas stations rose this week by a higher percentage than the oil capacity reduction.

"I don't recall prices shooting up this quickly for products like gas at the pump," said Doug MacIntyre, senior oil market analyst with the U.S. Energy Information Administration.

The stations assert that the increases are justified because they're paying unprecedented prices for gas.

On Wednesday, Sheetz paid $3 a gallon for gas from its suppliers. That's an increase of up to 80 cents, said spokeswoman Monica Jones. Pre-Katrina, Sheetz paid about $2.55 for a gallon of gas. Sheetz raised its price of regular gas to $2.99 on Wednesday.

But prices aren't created equally at every Sheetz outlet. As Jones explained it, "it's neighborhood pricing." That means Sheetz considers several factors, including its competition, the demand for gas in a certain area, the volume of gas sold, the market value and what it costs to transport the gas to an individual station.

And where does Sheetz's gas come from?

Jones said some fuel comes from the Gulf, and some comes through the New York Mercantile Exchange. But she's not sure where the oil that comes via the Big Apple originates.

"When wholesale prices come down, we come down," Jones said. "We are not price gouging. We make pennies on the dollar."

Carl York, Kroger's spokesman, described Kroger as a low-price gas retailer, whose prices are still lower than some of its competitors.

But Katrina is not the only reason for the spike in prices. Prices were volatile even before the hurricane damaged refineries that could take months to return to normal operation.

A supply shock such as the damage caused by Katrina, combined with increasing demands, make more onerous the ever-present burdens of the United States' longtime heavy reliance on OPEC's oil, said some experts. Further, global thirst for oil has increased recent years because of a boom in overseas manufacturing sparked by the North American Free Trade Agreement. The mere threat of a shortage has caused the price of oil to double in the past two years.

Gas prices are a symptom of the problem, said Tom Mast, author of "Over a Barrel: A Simple Guide to the Oil Shortage."

"The world is on the ragged edge of its oil supply not being able to meet the demand, creating a shortage," he said. "We should not have let ourselves get into the position that an act of nature could have such an effect on our economy and our lives. We have procrastinated way too long developing alternatives to oil, particularly for transportation."

In his book, Mast wrote, "We can drive an SUV loaded with people and luggage twenty miles for the price of an ice cream cone."

Globally, three to four barrels of oil are produced for every one barrel that's discovered, he said.

The Environmental Protection Agency has made it more difficult for producers to build new refineries, said James DiGeorgia, author of "The Global War for Oil" and publisher of the Gold and Energy Adviser newsletter. He sees politics as partly to blame, noting that $15 million pumped into President Bush's campaign came from oil interests.

The power of OPEC is a continuing influence on the oil market that can create price instability, which only worsens when hurricane winds start to blow. "We've made OPEC incredibly wealthy," he said.

In similar fashion to consumers wondering who to blame for price increases this week, DiGeorgia suspects possible gouging, but on an international level that predates Katrina. "The Saudis and other OPEC countries are lying about their reserves," said DiGeorgia.

But Walker, the disgruntled Kroger customer, directs his anger no farther than his neighborhood. "I will never buy from them again."

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