Salt Lake City businessman Dave Dozie paid $3.26 a gallon for regular unleaded gasoline Thursday at a Conoco station on the way to Denver International Airport.
“I think this whole … country is getting gouged,” he said.
Consumers still are paying sky-high prices for gasoline, even as wholesale gas prices have dropped sharply over the past 11 days after the initial hit from Hurricane Katrina.
Price-gouging, consumer activists claim. Market forces at work, the energy industry says.
What’s indisputable is that Colorado consumers are not yet enjoying the recent $1-a-gallon decrease in national wholesale gasoline prices.
Wholesale prices peaked at a record national average of $3 a gallon for regular on Aug. 31, two days after Hurricane Katrina tore through Gulf of Mexico oil refineries and production platforms.
Since that peak, some refineries and crude-oil production have come back on line. Wholesale prices steadily have declined, down to slightly under $2 a gallon late last week.
Yet the $1 decline in wholesale prices is nowhere to be found at retail pumps. Colorado’s average retail price of $3.07 for regular on Friday is down just one-half cent a gallon from the record high reached Wednesday.
While retail prices have shot up 44 cents a gallon since the hurricane, gas stations have been slow to pass on subsequent declines in wholesale prices.
There’s a reason for the delay, said Mark Copeland, owner of a Shamrock station on South Colorado Boulevard.
When wholesale prices rose rapidly after the hurricane, many retailers declined to pass the full extent of the price hikes on to customers.
Copeland said his margin on gasoline – the difference between his wholesale purchase costs and retail sales price – shrunk from a pre-hurricane level of 15 cents a gallon to 9 cents immediately after the storm. The 9-cent margin left him with almost no net profit after paying credit-card fees, wages and other expenses.
Other retailers absorbed losses, Copeland said, by selling gas at as much as 30 cents a gallon below their fast-rising replacement costs, in an apparent effort to maintain sales volume and customer loyalty.
Copeland refused to sell at a loss. He had to raise his retail price last weekend to $3.199 – far higher than his nearby competitors at $3 – just to maintain his 9-cent margin.
Nationwide, retailers in 2004 had gross margins on gasoline of 12.7 cents a gallon, or 6.9 percent, the lowest level since 1984, according to the National Association of Convenience Stores.
With wholesale prices now dropping quickly, Copeland said he hopes retail prices decline slowly to give retailers a chance to make up lost profits.
Retailers shaved their profit margins to maintain market share and to deflect media and public allegations of profiteering, said Steve Douglas, a marketing official for Suncor USA, which operates Colorado’s only oil refinery.
Experts offer additional reasons to explain the perceived gap between wholesale and retail gas prices.
Robert Berke, editor of the Oakland, Calif.-based Energy X File newsletter, said retail prices are slow to drop across all commodities.
“When you’re in Macy’s and you hear that the price of cotton is going down, you are not going to be paying less for shirts,” he said. “A lot of retailers profit from this.”
Soaring stock prices suggest that Wall Street sees profits from Katrina-related price spikes flowing upstream to refineries and major oil companies, already reporting record profit increases over the past several years.
Exxon Mobil raked in $7.6 billion in profits in the second quarter, a 32 percent increase from the same time period last year. Conoco-Phillips netted $3.1 billion in profits during the same time, up 51 percent.
But sales have risen along with profits, which means the oil industry’s margins have remained stable. The U.S. oil industry averaged a 7.6 percent profit margin last quarter, according to the American Petroleum Institute, compared with a 7.9 percent average for all U.S. industries.
The banking, pharmaceutical and software industries have profit margins above 15 percent.
Staff writer Steve Raabe can be reached at 303-820-1948 or sraabe@denverpost.com.
Staff writer Kimberly S. Johnson contributed to this report.
