Stephen Kralik of Penn Hills blames current events for causing gasoline prices to move in multiples of 10 cents or more.
"Probably the biggest factor why prices jump so much at one time is the hurricane (Katrina)," said Kralik, as he pumped gasoline last week at Tony Tyke's Citgo Service, 4020 William Penn Highway, Monroeville. "Iraq certainly is one of the factors."
Michele Clarke and Carol Kelley, both of Murrysville, didn't blame natural or man-made causes, as they pumped gasoline at the Murrysville Sheetz store at 4701 William Penn Highway.
"Greed, on the part of the oil companies," Kelley said.
"Greed," Clarke said. "You would think the suppliers would know when to stop."
Few things frustrate consumers as much as helplessly watching gasoline prices shoot skyward -- sometimes while they're waiting at the pump to fill up. And trying to figure out what causes gasoline prices to jump more than 28 percent at stations in Western Pennsylvania within days of Hurricane Katrina striking land, and then remain high, while the price of oil increased only about half as much in percentage terms -- is more frustrating.
"In the trade literature, it's called rockets and feathers," said Mark Cooper, research director for the Consumer Federation of America. "Gasoline prices go up like rockets, but come down like feathers.
"When prices go up, it's the marketers that get squeezed," Cooper said. "So when the refiners finally drop their prices, the marketers are slower to drop the retail prices because they are trying to recover what they lost when prices rose."
Reasons offered by the oil and gas industry for the recent runnup in gasoline prices include the uncertainty caused by Hurricane Katrina hitting Gulf of Mexico oil rigs and coastal refineries. Another is historically low gasoline stocks -- as refiners have moved to "just-in-time" demand-supply strategies. And the industry even blames panic buying by consumers trying to beat a possible retail gasoline shortage and higher prices.
"I believe there was a substantial run on gasoline," said Tom Skarada, vice president, refining for United Refining Co. in Warren, one of two operating refineries in Western Pennsylvania. "I suspect there was panic buying."
Some experts don't believe the refiner's reasoning.
Cooper, of the Consumer Federation, said refiners don't face real competition, and so raise their prices as they see fit. "The day after Katrina hit, the refiners woke up, picked a number, and they all charged it. And they put up the unbranded gasoline they sell higher than the branded gas to protect their brand names."
The refining companies that process crude oil into gasoline, many of whom also operate gasoline stations and convenience stores, say they heard consumers gasping for breath loud and clear as gas prices surged to $3.20 a gallon or higher in the wake of Katrina. In the Pittsburgh area, prices jumped 70 cents a gallon during a two-day period.
The key factor in surging prices, refiners say, is that retailers must charge enough to pay refiners for the next truckload of gas.
"They (retailers) have to charge enough so that when they buy the next load of product (gasoline, from their wholesale distributor), they can afford it," said Scott Dean, the gasoline spokesman for BP America Inc., Warrenville, Ill.
Fearing consumers' anger, however, they often have trouble keeping up as prices move even higher.
"It's not uncommon for retail stores to lose money when spot prices spike quickly," said Mary Rose Brown, spokeswoman for San Antonio-based Valero Energy Corp., the nation's largest refiner. Many of its 2,900 Diamond Shamrock locations across the South were losing a half-dollar per gallon of gasoline sold, she said in an interview last week.
"Retailers simply can't or choose not to pass on the full cost increase to consumers," fearing consumer backlash, she said. "In the case of Katrina, spot prices increased dramatically on the news that 12 percent of U.S. production capacity was down."
Brown said that the Thursday after Katrina reached land, Valero's systemwide average retail price was 55 cents per gallon below replacement cost.
That causes the classic squeeze on retailers referred to by the Consumer Federation's Cooper, which forces retailers to maintain higher prices for longer periods to recover what they lost when prices rose.
And gas prices rise faster than crude oil because the cost of crude comprises roughly half the cost of a gallon of gasoline, according to the Energy Information Administration. If a barrel of crude containing 42 gallons rises in price by $10, each gallon of crude rises in price 23.8 cents. That does not include costs to refine the crude into gasoline, federal and state taxes tacked on to a gallon of gasoline, or marketing and distribution charges.
"The underlying reason for prices spiking is supply and demand," says United Refining's Skarada, echoing a June report from the federal General Accounting Office. The company sells gas at retail though its chain of Kwik Fill and Country Market stores.
Each day, the United States as a whole demands more oil than it can supply.
In 2004, total daily demand was 20.7 million barrels, according to the Energy Information Administration. Supply, including more than 10 million barrels of imported crude, was 17.5 million barrels. That's a deficit of 3.2 million barrels of crude oil every day.
Katrina took out of the system more than one-fourth of crude oil production and about one-tenth of refinery capacity, according to the Energy Information Administration. In addition, about one-third of the nation's crude oil imports could not come through ports in Louisiana, Mississippi, Alabama and the Louisiana Offshore Oil Port, according to government statistics.
"Katrina played a very large part in what has happened to gasoline prices recently," said Linda Casey, spokeswoman for Marathon Petroleum Co. LLC, Findlay, Ohio, the nation's fifth-largest refiner. "You had nine refineries either shut down or forced to reduce production. The LOOP (offshore oil port) also was shutdown, so that crude oil was not going to Gulf or Midwest refineries."
With roughly 2 million barrels of crude oil refining capacity closed or curtailed, approximately 1 million barrels of gasoline was not being produced, about 10 percent of the nation's consumption, according to the Energy Information Administration.
But demand did not slacken. In fact, in some areas of the country, some within the industry believe it may have increased.
"Demand in the Midwest was up," said Marathon's Casey. "You had all the Gulf Coast evacuees leaving, you had all the emergency response people coming to the area, and you had members of the media urging people to top off their tanks. Some of our Midwest stores sold three times the normal amount of gasoline, some sold five times the normal amount."
Nationally, statistics from the Energy Information Administration tell a different story. For the four-week period ending Sept. 9 (the most recent period available), gasoline demand nationwide fell 2.2 percent, to more than 9.1 million barrels per day, from 9.3 million barrels per day.
For the one-week period ending Sept. 9, the demand reduction was even more pronounced, falling 6.5 percent to 8.6 million barrels per day, from 9.2 million barrels per day, the Energy Information Administration found.
Another reason for price spikes is tight gasoline inventories, which can't provide a cushion when demand spikes, refiners say.
Refineries typically balance gasoline supply and demand by tapping excess production that is stored at refineries or through imports. However, over the last 25 years, gasoline inventory has substantially dropped to save money, according to a recent study by the federal General Accounting Office. Inventories have dropped to fewer than 23 days' consumption in 2004, from roughly 40 days in the early 1980s.
In addition, not all stored gasoline can be shipped. Minimum levels must be left in the storage and transportation systems to keep each operating. And, just like a car's gasoline tank, it's unwise to draw from the very bottom of a storage tank, and suck up dirt.
"Our storage levels were driven to an all-time low," Skarada said. "We have about 400,000 barrels of gasoline tankage onsite at the refinery, and we try to keep a minimum of 110,000 barrels onsite at all times. But because of the tightness, we were driven down to the 50,000-barrel mark."
Gasoline prices hovering in the $2.80 per gallon for regular gasoline from a self-service pump is extremely high to Western Pennsylvanians.
Simon Davis, now living in Centerville, Va., put prices in perspective as he filled his car in Monroeville on the way to a concert in Toronto,.
"I'm from Greece. We had prices like this four years ago. Now, prices probably are five or six dollars a gallon," Davis said.
