Gas prices hit consumers, retailers Many factors

increase

prices at

the pump

By GUY PRIEL

Journal Staff Writer

NEW ULM -- Gas prices may be higher than people like to pay, and some studies indicate increases may continue; however, some relief may be on the way by the end of summer.

Customers see large increases of as much as a dime per gallon all at once, rather than a penny at a time, because of a variety of factors, Groebner's Amoco Manager Scott Trebelhorn said.

"The main reason is because of jumps in wholesale prices, which increase daily," Trebelhorn said. "The daily increase usually varies by a cent or less, in which case the prices paid at the pump may be the same for a month."

The wholesale price changes little, but that doesn't affect the street price until the price becomes too difficult to manage while still allowing for a profit for the retailers. Then prices climb immediately, Trebelhorn said.

"The wholesale increase may be as much as a nickel before the retailer is forced to increase because the price cushion begins to evaporate at that point," Trebelhorn said.

The oil producing nations that belong to OPEC, that agency that controls production amounts, are faced with stringent controls established by the organization. Those controls are another reason for an increase in prices at the pump.

"We are not really in a shortage situation, because there is still plenty of oil in the ground," Trebelhorn said. "The problem revolves around the inventory on hand, which is at record low levels throughout the country."

Another reason for increasing prices is a strike between workers in Norway, the second largest oil producing nation on earth. Ramifications from that work stoppage when combined with tighter environmental controls and changes in production to comply with the Clean Air Act also impact prices, according to Second District Rep. David Minge.

"For retailers it can be frustrating, because people think all of this is being done so someone can get rich, but there is a lot of pressure for us to keep the price lower," Trebelhorn said. "It is uncomfortable for us to be at this level, but we have to survive. If we follow the pressure to keep our prices low, we will price ourselves out of business."

Generally, Mankato leads the way in pricing with the exception of a pricing war earlier this spring. Retailers in New Ulm respond after Mankato has increased, he said.

"Another thing that hurts us in the credit card business, because most companies will charge 3 percent to process the purchase, despite the fact that the price remains the same for everyone," Trebelhorn said.

For example, in 1999, when gas prices were about $1 to $1.10 per gallon, the stations paid 3 cents per gallon to the credit card companies for processing, essentially making less money, he said.

"When the price is the same for all customers, we can't make that up, so we end up absorbing the cost," Trebelhorn said. "That doesn't mean we are discouraging the use of credit cards, because they are convenient, but it just means we do lose money. The percentage hasn't changed, we just make less money."

Gas retailers are promoting a card that will give customers money back on credit purchases that won't charge a processing fee that will help combat the price, Trebelhorn said.

"If we follow marketing trends and analyses, it will probably hit $2 a gallon by July," he said. "There are some benefits because there might be some relief by the end of summer, but we can only speculate at this time as to what the prices will be. They probably won't get down to where they were before they started the huge increase, though."

There is no shortage, it is simply a matter of supply and demand. The supply is not available to meet the demand, which is the driving force behind the problem with OPEC, Trebelhorn said.

"We were actually doing better in terms of profit when it was $1 to $1.20 a gallon than we are now, and we are basically to the bones in terms of company profits," Trebelhorn said.

One way of explaining the differential between prices at various stations is that some of the stations with less traffic flow have more reserves in the ground that were purchased at lower wholesale prices, so they can continue to sell for lower than others.

"The problem is different than it was in 1972," Trebelhorn said. "At that time, we were faced with shortages, low allocations and people waiting in line to buy gas. There was a tight supply and numerous restrictions on consumers.."

Adjusted to 2000 dollars, however, the prices paid during the gas crunch in 1972 were the equivalent of $2.50 a gallon, which made it still more expensive to buy gas then than it is now, according to Trebelhorn.