Business

Falling oil prices may not translate at pump

Crude oil prices are falling, but don't expect to see a big drop soon in fuel prices at the pump in the Tri-Cities and in Washington.

The price of crude oil fell from a high of about $87 a barrel in early May to about $70 a barrel Monday, largely due to the uncertainty of global economic recovery and a weak euro.

It takes about two weeks for the effect to trickle down to retail fuel sales under normal conditions, but it may take a bit longer for prices to drop locally and throughout the state, said Rod Smith, treasurer and vice president of wholesale fuels at R.H. Smith Distributing Co. in Grandview.

Fuel supplies are tight right now in the state, he said. Spokane isn't getting as much fuel as is needed from Montana and a Tesoro refinery on the west side isn't operating to its capacity after a fire in early April, Smith said.

Gas prices in the Tri-Cities may see smaller price drops, unlike the 20 cents to 30 cents a gallon decline elsewhere in the country, he said.

On Monday, a gallon of regular gas sold for about $3.11 in the Tri-Cities, the second highest in the state behind Bellingham, where regular gas cost a little more than $3.18 a gallon, according to AAA's Daily Fuel Gauge Report. The average price in Washington was about $3.08 a gallon.

Gas prices on the West Coast including Washington generally are higher than the rest of the country, partly because of the area's limited refineries and pipeline capability, and increased consumption, according to the Washington Attorney General's Office. The AG's office makes sure the marketplace is free from anticompetitive activities. For more information, go to www.atg.wa.gov/gasprices.aspx.

Gas prices will come down when people start consuming less, said Tim Hamilton, executive director of the Automotive United Trades Organization in McCleary. Gas prices in the Tri-Cities or any other community have more to do with local supply and demand for gas than the spot price or futures contract for crude oil, he said.

Oil companies deliver fuel to different terminals at different wholesale prices, and that dictates the retail price depending on local consumption in an area, he said. They manage their fuel inventories in a way so that they can maximize prices to a level that can be sustained by local markets, Hamilton said.

Smith said gas prices are determined by competition. There are typically three to 10 oil companies trying to push their fuel into the market at the three gas terminals -- Pasco, Moses Lake and Spokane -- in Eastern Washington, he said. "It's a balancing act between making more profit and selling more."

But there's seasonal flux in fuel prices, Hamilton said. That's why diesel prices start rising in the spring when farmers need to use their farm machinery and gas prices go up near the Memorial Day holiday as people get ready to travel, he said.

But gas station owners barely make a profit regardless of their fuel price, said Hamilton.

Typically, a retailer gets 10 cents to 12 cents a gallon on his or her purchase price, and after paying for operating costs, credit card transaction fee and taxes, he or she is lucky to make a penny, Smith said.

The notion that gas retailers are making $1 or $2 on a gallon of gas is grossly inaccurate, he said.

Smith and Hamilton said gas station owners at times make no profit on fuel sales and rely on the sale of coffee, pop and snacks, or car washes to help them make a profit.

Convenience stores sell gas because it helps bring in customers, they said.

-- Pratik Joshi: 582-1541; pjoshi@tricityherald.com

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