Don't expect oil-price drop to slosh into gas tank

NEW YORK - The headlines say oil prices have fallen 15 percent this year.

But the price at the gas station tells a different story - the cost of filling 'er up has slipped from about $35 to $33. Big deal.

The cost probably will drop further, but drivers shouldn't hope for a windfall at the pump: There's a lot more that goes into gasoline prices than the cost of crude oil.

Besides taxes and the costs of refining, distributing and marketing, there are factors such as local competition among gas stations. Just as with other forms of retail, consumers see savings when one retailer lowers its price, and the others scramble to match it.

"If gasoline costs me a dollar a gallon, and my competition down the street is selling it for 89 cents, my customer doesn't care what I paid for it," said Richard Oneslager, president of Balmar Petroleum, which operates 14 gas stations in Colorado.

Crude oil prices have fallen from about $61 to $51 a barrel this year on the New York Mercantile Exchange, but the average price for a gallon of regular is down about 13 cents from $2.33 on Jan. 1 to $2.20 yesterday.

A typical car holds 12 to 15 gallons, so if it's filled four times in a month, that's savings of less than $8 in a month - not even enough for that daily cup of coffee.

The savings are even less in the Philadelphia area. In the city and the four suburban counties in Pennsylvania, the price is down a penny to $2.39, according to AAA Mid-Atlantic. That's a savings of just 60 cents a month. It's down nine cents in South Jersey to $2.10, for a monthly savings of about $5.40.

Essentially, the recent price drop hasn't completely sunk in on the wholesale level, so gasoline retailers are still paying a lot for their product and won't lower prices until competition forces them to do so.

The Energy Department says the price of crude oil accounts for about half the retail price of gasoline. That means if crude oil is down 15 percent, pump prices should be down almost 8 percent.

But the time it takes for a drop in wholesale prices to fully affect retail prices is around 12 weeks, though most of the drop happens within the first two weeks.

"Retailers aren't making their price decisions on the price of crude oil," said John Eichenberger, vice president of government relations at the National Association of Convenience Stores. Instead, they focus on how much they paid for their current load of gasoline, and how much their supplier is telling them their next load will cost.

"We don't care about anything except what that tank the truck just brought in cost," Oneslager in Colorado said.

The average gasoline retailer has to charge 13 cents per gallon more than it paid to break even, Eichenberg said - and then mark it up more to make a profit.

The Oil Price Information Service shows that in 2006, the average gross margin for retailers was 13.76 cents a gallon - meaning profit was less than a cent per gallon.

So station owners are loath to bring prices down too far too fast, especially if they're recovering from profits that were squeezed last year.

Crude oil prices are about $10 lower than where they were a month ago, and many market analysts are saying they could tumble even lower. The reasons include the Northeast United States' warm winter, which caused a glut in heating fuels, and traders' following a wave of big funds in making bets in the market that prices will fall.

Also, demand may not be as high as some had thought: The American Petroleum Institute said yesterday that in 2006, U.S. demand for petroleum fell to below 2004 levels.

At this point, aside from retailers who are trying to make up big losses from last year, there's no reason gasoline prices need to stay high, said AAA's Jeff Sundstrom.

"Retailers need to see the development of a trend to lower prices. They need to be convinced that these prices will stay down. Now that we're going into a third week of prices below $60, AAA's position is that a trend has been established," Sundstrom said.