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Dropping gas sales

Drop in demand not pulling gas price down

ST. PETERSBURG — Gas station owner Dave Percival has seen firsthand some of the 700,000-barrel-a-day drop in gas consumption that has taken place across America.

With his gas price now set at $3.99 a gallon, he's selling about 16,000 fewer gallons a month than a year ago.

Like the rest of us, he's wondering if this change in buying habits will lead to a drop in prices and a recovery for his struggling business.

It's the big question. Have American consumers dropped their usage enough to affect the price at the pump?

Not likely. There are too many other factors, including China's increasing demand.

"While the U.S. is the largest consumer of oil in the world, it still only makes up roughly 20 percent of world oil consumption," said Christopher R. Knittel, an associate professor of economics at the University of California at Davis. "So even if we reduced our gasoline consumption by 10 percent, this would only be a 1 percent drop in world oil consumption … a drop in the proverbial bucket."

• • •

Ray Hubbard pulls his white Ford Escort into Dave & Michelle's BP on Fourth Street N in St. Petersburg.

As he pumps his gas, he talks about how prices have started to affect his life. He and his wife recently decided to take a day trip to St. Pete Beach instead of Sarasota. He puts smaller amounts in his tank, rather than filling it up.

As he tries to eke out the last few drops, the meter shows the $25.06 tab for 6.26 gallons of regular.

"I'm thinking about it more, and I really never have done that before," said Hubbard, an independent insurance agent from St. Petersburg.

A similar pattern has emerged across the United States. Like Hubbard, Americans are buying less gas.

Americans drove 11-billion fewer miles in March compared with the same time a year ago, the largest decline ever recorded by the Federal Highway Administration. In Florida, motorists logged 864-million fewer miles, a 4.6 percent decline.

People are switching to public transportation and more fuel-efficient cars, too.

"Gas prices have been high for quite a number of years but … consumers are more convinced that prices are here to stay," Knittel said.

• • •

Given gas prices, it wouldn't be a stretch to think gas stations were rolling in money.

In reality, retailers make less money as the price of gas increases. That's because credit card companies, which take an average of 2 percent of any purchase made with a credit card, gobble up a larger chunk of the profit.

For example, when gas is $1 a gallon, credit card companies get 2 cents. When the price is $4, they get 8 cents.

Gas retailers usually aim to make about 9 cents a gallon, so the credit card fees can eat up most of that.

"That's the irony," said Todd Murrian, general manager of Bob Lee's Tire Co. on Fourth Street N in St. Petersburg. "I'm making 2 percent for doing all the work. They're (credit card companies) making 8 percent for nothing."

To overcome this, some stations offer cash discounts.

Others charge the same price and hope to recoup profit from those who pay with cash.

A small few have given up on trying to make any money on gas sales, building their businesses on convenience store items or car repairs instead. But those sales are suffering, too.

"People are buying gas but they're not buying groceries. They've stopped buying other stuff," said Mirza Zubari, manager of a Marathon gas station in Tampa. Gas consumption is down 2 to 3 percent, he said. Grocery consumption is down 5 percent.

Statewide, gas retailers are reporting that sales are down between 2 and 4 percent, said Jim Smith, president of the Florida Petroleum Marketers and Convenience Store Association Inc.

"That's a significant amount of money out of their cash flow, so they can see it," he said.

• • •

Many consumers are so shocked by the price of a fill-up these days that they haven't noticed the stickers added to gas pumps across the state in recent months, telling them the gas contains up to 10 percent ethanol.

A new state law, signed by Gov. Charlie Crist last week, requires all gasoline sold in the state to contain 10 percent ethanol by the end of 2010. The U.S. Department of Energy recently estimated that gasoline prices would be 20 to 35 cents higher if ethanol were not blended in the nation's gasoline.

Advocates say the blended gas is cheaper and reduces U.S. reliance on oil. The downside is ethanol reduces gas mileage by about 3 percent, the Energy Department says.

Percival, who owns the BP station in St. Petersburg, thinks it's more like an 8 percent to 10 percent decrease. That's why he won't sell it.

"I think it's upping our consumption," he said. "You spend an extra 10 percent to go the same distance. It's driving our food prices up."

His stance is winning him some customers — for now.

"I find that gas with ethanol is not fuel-efficient," said Harry Gonzalez, who drives a flower truck but was filling his own car, an Isuzu Trooper, at Percival's station. "The gas is burning quicker so I come here."

Percival realizes that one day he will be forced to succumb. Last week, his gas supplier told him he was having a hard time finding regular old regular.

Times researcher Shirl Kennedy contributed to this report. Leonora LaPeter Anton can be reached at lapeter@sptimes.com or (727) 893-8640.

County Feb. '06 Feb. '07 Feb. '08
Hillsborough 47,384,087 49,079,187 46,497,677
Pinellas 31,041,442 31,294,683 29,348,002
Pasco 16,200,880 16,031,746 15,287,064
Hernando 6,070,239 6,233,108 6,279,757
Statewide 714,448,294 730,376,019 691,070,178


>>fast facts

Tacked on

If the price of a barrel of crude oil is $135, that's $3.21 per gallon (each barrel holds 42 gallons). Here is the average cost of add-ons per gallon that retailers must charge:

27 cents for refining and distribution

18.4 cents for federal taxes

15.6 cents for state taxes

2.2 cents for federal and state pollution taxes

13.4 cents for county taxes (Pinellas, Hillsborough, Pasco)

Total: $3.97.6

What's left for
gas retailers?

Retailers usually try to make 9 cents per gallon, but with credit card companies taking 2 percent on average, many are losing their profit margins as the price of gas increases.

Source: Florida Petroleum Marketers and Convenience Store Association Inc.

Drop in demand not pulling gas price down 06/29/08 [Last modified: Monday, June 30, 2008 1:16pm]
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