Lower fuel costs finally paying off for retailers

WASHINGTON — Motorists may appreciate the recent decline in fuel prices, but not as much as gas station owners do.

When pump prices skyrocketed after Hurricane Katrina, gasoline retailers were caught in an uncomfortable paradox — they were accused of gouging at the same time their profits were being squeezed by runaway costs at the wholesale level.

Now the reverse is true. The outrage from consumers and Congress has died down just as gas stations around the country are reaping some of their best returns at the pump in years by passing along huge savings at the wholesale level as slowly as possible.

"We just had a two-week period there with our best margins in two years," said Bill Douglass, who sells Exxon- and Mobil-branded gasoline at 14 locations around Dallas and distributes fuel to 165 others.

Douglass and other retailers are benefiting from the fact that the spread between wholesale and retail prices is almost twice its normal size. Since the beginning of September, wholesale prices have fallen by more than 40 percent, while retail prices have come down just 11 percent, according to U.S. Department of Energy statistics show.

Nationwide, the average gross profit margin at the pump was 37.2 cents per gallon for the week ending Oct. 17, compared with 7.9 cents per gallon a year earlier, according to the Oil Price Information Service of Wall, N.J. OPIS said this sweet spot for retailers would only last "another week or two."

The lagging decline in retail prices is not accidental and the industry is not apologetic about it. It's important to "do some catching up," Douglass said, because after Katrina, when wholesale prices spiked, many retailers — particularly those selling unbranded gasoline — lost money on every $3 gallon of gasoline they sold.

Notwithstanding the additional profits they have enjoyed in recent weeks, retailers said the real windfall is being collected in other segments of the industry.

Companies such as Exxon Mobil Corp., Chevron Corp. and BP PLC, which extract oil from the ground, refine it into gasoline, diesel and heating oil and then sell these fuels on the wholesale market, are indeed making bundles these days. And while these so-called integrated oil companies also sell fuel at the retail level, that is a small and shrinking segment of their business.

Of all the places to buy gasoline in the U.S., less than 10 percent are owned by companies that produce or refine oil, according to the Department of Energy. That is down 50 percent from 1998, reflecting a concerted effort to shed these less profitable assets.