Share this article

print logo

Gas price yo-yo Just as gas dipped under $3 a gallon, a new storm threatens to send prices soaring again.

When it comes to gasoline, what goes up does come down -- but not always at the same speed.

And when hurricane season blows through the South, it could be a bumpy -- and often expensive -- ride getting back to where prices were before disaster struck.

Average gasoline prices in the Buffalo area dropped below $3 a gallon for regular unleaded this week for the first time since early September, in the aftermath of Hurricane Katrina's attack on the Gulf Coast and its oil refineries.

But gas prices are dropping much more slowly than their meteoric rise: They went up as much as 30 percent in a recent five-day period, yet are dropping by just a few pennies a day.

And now, with Hurricane Rita threatening to wallop Texas, local station owners are keeping prices flat as rising crude oil costs again threaten to spike up the price of gasoline.

With governors and U.S. senators from around the country calling for investigations into possible price gouging, it's no wonder motorists are angry, convinced that the gasoline industry is taking advantage of a natural disaster.

"It gets you so disgusted," said Daniel Karalus, 63, of Cheektowaga, pumping gas this week at a Walden Avenue service station. "They just want to keep the profits as long as possible. When I started driving, gas was 17 cents a gallon."

"This is ridiculous," added Ed Petre, 56, also of Cheektowaga, after pumping $50 worth of gas into his truck. "I know they are gouging."

An analysis by The Buffalo News found there was money to be made from the hurricane-spurred gasoline crisis.

Oil stocks jumped. The value of ExxonMobil stock rose to $65 per share in midweek, from just over $58 in mid-August. Valero Energy stock was worth just over $111 in midweek, up from about $87 in mid-August.

New York State, meanwhile, collected an estimated $40 million in extra tax revenue on gasoline sales -- although the state claims it likely paid out an equal amount in higher gasoline and energy costs.

Erie County also collected extra sales tax but says it won't know how much until receiving its quarterly statement next month. It's possible, Budget Director Joseph Passafiume said, that any extra gasoline sales tax was offset by drops in other tax items.

As for the gas stations, it seems unlikely they are making huge profits.

The News analysis found most gasoline retailers struggle to just break even when gasoline prices suddenly jump.

"I don't believe anyone is gouging," said Joe Hannon, who runs three Citgo stations in Erie County. "I was negative 20 cents a gallon for a few days. The prices were fluctuating so wildly."

> Trying to recoup losses

Often, station owners and other industry analysts say, station owners lose during periods of sudden spikes upward, then attempt to recoup their losses by stretching out the drop.

"You lose money when [the price] goes up, make some money when it comes down, and hope it equals out," said Michael Newman of NOCO Energy Corp. "The market is efficient at self-correcting." Perhaps. But the process of getting there can be brutal.

Crude oil prices began their upward spiral days before Hurricane Katrina struck, fueled by investor fear that the storm would damage the Gulf Coast oil refining industry.

Gas prices in local stations inched up ever so slightly at that point, with many station owners assuming the increases would be temporary and not worth passing along to consumers.

But then the storm hit, knocking out refineries on the coast, as well as some pipelines.

Within days, a barrel of oil, which sold for $61 at the beginning of August, was trading at more than $70. Gas station owners worried how they would pay for their more-expensive upcoming shipments, so the price of gasoline already in underground tanks here jumped so owners could afford their next loads.

From Aug. 30 -- the day after crude oil hit over $70 a barrel -- through Sept. 4, in the middle of the Labor Day weekend, the average price of a gallon of regular unleaded gasoline in the Buffalo area went up 30 percent, to $3.50.

By Sept. 12, crude oil prices began falling and were back to $62 a barrel.

But prices at the pump remained high, as stations continued selling gas purchased at higher prices, or continued recouping money lost from selling gas below cost earlier in the month.

Larger, high-volume stations began to slowly drop prices as new, less-expensive shipments arrived. Smaller, low-volume stations, still selling off the more expensive gas, dropped prices even more slowly.

Then with the approach of Hurricane Rita, the cost of a barrel of crude was back up to $67 by the end of this week.

The slow decline in gasoline prices came to a screeching halt as nervous station owners, wondering what will happen next, opted to keep prices flat for the time being.

At NOCO gas stations, these have been trying times for owners Michael and James Newman.

The owners of the small local network say that when gas prices began rising, they kept their pump prices down, figuring the higher rates would drop the following day. But one day ran into another, and between Aug. 29 and Sept. 2, NOCO lost $100,000 because its pump prices didn't keep up with wholesale prices, Michael Newman said.

As Labor Day approached, he said, the company paid $3.85 a gallon on its last gasoline shipment -- a 70-cent-a-gallon increase in a single day.

Unwilling to continue taking losses, NOCO increased its pump price to $3.89 a gallon -- up from $3.09 the previous day -- during the holiday weekend.

The driving public reacted with anger, Newman said. But he said his company had no choice if his stations were going to remain open for the holiday weekend.

Some other stations didn't.

> Some ran out of gasoline

Delta Sonic, for example, says it ran out of gasoline that weekend and was forced to close.

Every morning, Delta Sonic station managers survey gas prices within a two-mile radius, then set their prices lower.

The company is able to operate that way because it is diversified, selling car washes and food as well as gas.

"We have other products, oil changes, car washes. It's not necessarily a loss [on gasoline], but we are willing to work at lower margins," said Robert Klein, executive vice president at Delta Sonic.

In fact, the only place gas is consistently lower than Delta Sonic is on the area Indian reservations.

Gas usually sells for at least 20 cents a gallon lower at Smokin' Joe's gas station on the Tuscarora Reservation than at nonreservation stations, since it is exempt from state and local taxes that represent about 45 cents on a gallon of gas.

At the opposite end are small, individually owned stations with low-volume business, such as Jamell Saleh's Go Station at Main and Utica streets in Buffalo.

Saleh's was among the few stations still selling gas for over $3 a gallon Thursday.

Saleh displayed a purchase order showing he paid $2.82 a gallon for his gas on Sept. 3. Add 45 cents a gallon in state and local taxes, and another 19 cents in federal taxes, and Saleh would have to sell the gas at $3.46 a gallon just to break even.

But with everyone else now selling below $3 on newer shipments, Saleh is selling it for $3.08 a gallon.

"I'm selling my gas at a loss," he said.

A few other nearby stations face similar dynamics.

In downtown Buffalo, Joe Hannon, who oversees operations at the Citgo station at Elm and Broadway, and Rick Fraas, who owns a nearby Mobil Station on Michigan Avenue, said their prices stay higher longer. That's because it takes lower volume dealers like themselves more time to go through more expensive gasoline shipments.

Mobil is the dominant gasoline company in the Buffalo area, and stations owned and operated by the oil giant here tend to have some of the area's lowest prices.

"The accusations are not true," said ExxonMobil spokesman Russ Roberts. "Our prices are competitive, based on the situation."

Meanwhile, Mobil as well as station owners are worried about the next few days and what Hurricane Rita will mean to the gasoline industry.

Already, big oil companies have shut some refineries they fear are in the hurricane's path.

"Friday (today) and the weekend will tell us what will happen," said NOCO's Michael Newman.

e-mail: and

There are no comments - be the first to comment