Running on Empty(Gas stations stop selling fuel)

milwaukee journal sentinel ^ | May 23, 2007 | THOMAS CONTENT

[kellynla]

As gas prices hit another record last Friday, Jeff Curro couldn't take it anymore.

He wasn't a motorist at the pump fed up by the blur of numbers spinning higher as he filled his tank.

Curro is a gas station owner who has stopped selling gas to his own customers.

After selling gas at N. 124th and W. Burleigh streets for 20 years, Curro turned off his pumps at his Shell station in Brookfield when the price he was being asked to pay was just too much.

Including the wholesale cost of gas and other taxes and charges, he was being asked to pay $3.44 a gallon Friday, a day when the competing stations down the street were selling gasoline for $3.47.

"Three cents a gallon doesn't cut it," Curro said. "It doesn't pay the bills."

Add to that the money he loses every time a motorist uses a credit card at the pump, and there was no reason to keep selling gas, Curro said.

Credit card companies and banks get an average of 2.75% on every gallon of gas sold, and credit card processing fees now rank as the second-biggest expense for gas station operators, according to the National Association of Convenience Stores.

"The way I see it is, I'm doing all the work of providing the labor, the wages, the electricity, the lighting, the maintenance of the pumps, the repairs and the insurance, which is quite substantial," Curro said. "I'm doing all the work, and somebody else is getting fat on me."

Curro isn't alone in deciding to not sell gas anymore. Casey O'Gorman did the same thing. In business for 25 years near State Fair Park, his West Allis service station is now doing business exclusively as Auto Analyzers. The Shell name came down a few months back.

"I finally had to just pull the plug on it and say, 'I can't afford to do it anymore,' " O'Gorman said.

High wholesale prices Curro and O'Gorman are leaving a relatively small and disappearing group of service station owners who both sell gas and repair cars.

Independent auto-repair shops face competition from car dealerships and quick-lube repair shops, and in the sale of gasoline, they compete against full-line convenience stores.

Most gas stations today double as convenience stores, and although they generate more than two-thirds of sales from gas, two-thirds of profit comes from in-store sales of cigarettes, drinks and food, according to the convenience store association.

When drivers are paying more, they think that means higher profits for the filling station, said Bob Bartlett, executive vice president of the Wisconsin Petroleum Marketers & Convenience Stores Association.

The case of the two Shell stations stopping sales of gas illustrates the challenges faced by independent station owners across the state, Bartlett said. Nine of 10 stations in the state are independently owned and run, he said.

Between Feb. 1 and Monday, Bartlett said, the average wholesale price paid by service stations in Milwaukee to buy gasoline rose from $1.66 to $2.94. Add in taxes paid to the federal and state governments, as well as transportation costs, and the average service station had to cover $3.47 on Monday, without charging any profit. On that day, stations were charging their customers $3.47 on average in Milwaukee, according to AAA's Daily Fuel Gauge Report.

"People are upset about oil and gas prices, but it's not this guy right here," Bartlett said of the independent gas station owner. "He's not OPEC. He's not refining it. He's buying it kind of like I am, right at the end of the line here."

Sales up, profit down Curro has been thinking about shutting down his gas pumps for about a year, and he has complained to his supplier about prices.

When he shut down his pumps, he was charging $3.59 a gallon, 12 cents higher than the competing stations nearby.

"Even at $3.59, I was making 15 cents, but I was still giving 10 of those cents to MasterCard," he said.

Nationally, the Association of Convenience Stores estimates that sales rose 12% but profit fell 23% industrywide last year, and for the first time, credit card fees were higher than the industry's profit.

Lower margins on the sale of fuel and credit card fees were the two main factors behind the drop in profit, the association said, as profit margins on the sale of fuel dipped to their lowest point since 1983.

Until January, O'Gorman and the predecessors at S. 84th St. and W. Greenfield Ave. sold gasoline on that corner since 1938.

He says he never made much money selling gas but started seeing margins nosedive last year when gas prices rose.

"More and more, it was crowding out my real form of income," O'Gorman said, referring to car repairs.

"Then you listen to the public, and they say we're gouging them. Who needs to listen to that? I'd need to have my head examined."

[kellynla]

"Sad fact is the distributors are trying to charge $3.44 a gallon while the spot price is $2.2288 per gallon (NY Harbor, 5/22/07). Federal gas tax is $.184 and Wisconsin is what, $.329? That adds up to $2.74. Even at the worst spot prices this past month, you’re looking at about $3.06.So even if the spot price dropped to $.3003 per gallon as it was on Dec 24, 1998, they would be looking to charge the stations $1.63 a gallon. On 12/24/98, average prices were about $1.01 a gallon. In other words, someone (and not the station) is making a LOT more than they used to after the actual refining of gas. "

I'll have to pass this on to our resident expert, "thackney", who knows more about this subject than I.

[Kellis91789]

Nobody seems to mention the real constraining factor here.

What kept this station from making a profit wasn’t big oil or taxes or MasterCard. It was that Shell is charging him more than whoever is supplying the other station down the street.

Who is that ? Chevron ? Or a Shell-owned rather than franchisee station ? How can they afford to sell gas at a price this Shell owner can’t profitably match ?

Other articles have also mentioned Shell specifically, and franchisees specifically. As though Shell is trying to squeeze out the small operator and take direct control of the retail end.

[freeforall]

One can increase competition in the marketplace by lowering entrance costs through lower taxes and regulation, that is the key.

[thackney]

On 12/24/98, average prices were about $1.01 a gallon.

And what we got for those cheap prices then are the high prices today. There was no money to keep up much exploration, new drilling, expansions and capital improvements. The surplus margin fell so low that events like Katrina were devastating to available supply. And when the Asia economy picked back up the demand pushed up against the available supply. The result was:

Many oil companies were able to get by on those cheap prices. But they were not building for the future, and many others had to sell out stock or reserves or facilities just to survive. Several had to sell out all together.

The reality is those cheap prices were not cheap for us in the long run. Oil fields deplete, water cuts go up in time, H₂S tends to build up in some fields as they age and produced water is re-injected. If a company is not reworking wells, drilling, exploring and building facilities, oil production is going to decline after a few years.

Now the refineries are in the same boat as production. The last couple years there has been some expansions. In other countries a few new refineries are being built. Some really big expansions are in design right now, major equipment being specified and soon to be ordered, construction being planned. But this spring the US got caught. Margins were very tight, quite a few expansions/upgrades were being planned during the winter-to-spring switch so stocks were built up higher than normal. A few extra unplanned outages and a higher than expected demand resulted in:

Supply and Demand are still the biggest impact in this market. The good news is are those profit margins are still around 10%. In this time of high prices are lots of investment back into the industry. Dollars are pouring into exploration, expansions and new infrastructure.

There still is a lot of competition in this market. More than 60 different companies have US refineries, some little ones are still competing. A couple hundred companies produce oil, import oil or import refined product. If we had a government that didn't tie their hands by keeping resources unexplored, taking 7 years to get a permit to "start" a new refinery, a multitude of different gasoline blends so product is not available to move to a different area when a refinery is down, then our prices would be lower.

[Bloody Sam Roberts]

Hey...I’m all for smaller gubmint. Much smaller.

[goldstategop]

Most gas service station owners earn only pennies on the dollar. Most of it is gobbled up by government and then the oil company takes its cut. So its not a way to get rich. Its just hard work with little return on the investment.

Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." -Manuel II Paleologus

[kellynla]

Thank you for the explanation.

[eraser2005]

That’s a lot of good information, and I don’t disagree with it at all.

But that doesn’t really explain why the spread between the nearest gas futures/spot and pump prices is so much greater now than it was in 98. I don’t disagree that prices in 98 were really too low to be good for the long run.