Turning Away From the Gas Pump : Energy: Motorists are changing their buying habits as a national survey puts prices within a penny of 1981’s all-time high.
With gasoline prices less than a penny per gallon below the all-time record, consumers have responded by cutting back on their use of gasoline and switching to less-pricey grades.
Driven by the Iraqi invasion of Kuwait 11 weeks ago, the price of regular unleaded self-serve gasoline has risen on average more than 30 cents a gallon nationally since Aug. 1 to nearly $1.38 a gallon, the American Automobile Assn. reported this week.
In Los Angeles, the price for the same grade of gasoline climbed more than 23 cents a gallon to about $1.34 as of Oct. 5, according to the latest figures from the Lundberg Survey.
Meanwhile, federal investigators are trying to nail down proof that oil companies colluded to raise prices. Earlier this month, they issued subpoenas to oil companies and refiners for internal documents.
Legislators and consumer groups continue to accuse the industry of price-gouging and profiteering, because gasoline prices rose so quickly and so sharply after the Aug. 2 invasion.
Connecticut and Massachusetts quickly enacted emergency anti-price gouging measures similar to one already in force in New York, and Sen. Joseph I. Lieberman (D-Conn.) is pushing a federal anti-gouging bill designed to prevent a future gasoline price shock.
For their part, oil industry officials have steadfastly denied charges of price-fixing, arguing that the price hikes merely reflect the workings of the marketplace.
“We believe (the investigations) will show, as they have in the past, that the market is working, and that there are just too many transactions involving too many people to engage in collusive activity,” said Joe Lastelic, a spokesman for the American Petroleum Institute, the industry’s main trade group.
Industry officials added that gasoline price hikes have failed to keep pace with the rapid run-up in prices of crude oil, from which gasoline is made. Refiners and marketers of gasoline, they note, are now losing money.
On Wednesday, the price of light, sweet crude oil for November delivery fell $2.17 a barrel to $36.72 a barrel on the New York Mercantile Exchange. The sharp drop was only the latest move in a volatile market characterized recently by dramatic increases and declines almost daily.
Even if Iraqi President Saddam Hussein pulls out of Kuwait tomorrow and crude prices plummet, gasoline prices are expected to lag by weeks. That would give refiners time to recover losses incurred during the period of high crude prices, analysts said.
“On the upside, everyone says that gasoline prices move up immediately, but on the downside, they move with a lag” behind crude oil prices, said John Lichtblau, president of the industry-funded Petroleum Industry Research Foundation in New York. “This time, they will follow with a considerable lag.”
The automobile association reported that the nationwide increase in gasoline prices has slowed. Still, the average national price of $1.379 a gallon is just a hair short of the record price of $1.388 a gallon reported the weekend before Easter, 1981, during the Iran-Iraq war.
As a result, demand for gasoline is off. Demand last month was 1.5% lower than a year ago, a higher-than-usual drop attributable in part to the higher prices, the petroleum institute reported Wednesday.
Meanwhile, drivers reportedly are switching in droves from higher-priced premium blends to regular gasolines, though there’s no clear data on the trend.
Prices are expected to continue rising to make up for the continuing run-up of crude oil prices.
Compared to the 30-cent-a-gallon hike in retail gasoline prices, the cash price of the benchmark U.S. grade of crude oil has risen more than 42 cents a gallon since Aug. 1. As the price of crude oil goes up, the cost of making gasoline goes up. If the price of gasoline does not follow, the profit margin for gasoline shrinks.
Because the hike in gasoline prices has not kept pace with crude prices, international oil companies are expected to report that refining and marketing profits fell 52% in the third quarter, which included August and September, according to a report by Salomon Bros.
That would more than offset the 50% increase expected in earnings from exploration and production operations, due to higher crude oil prices.
Still, industry critics charge that the oil industry conspired to unfairly raise gasoline prices. Wholesale and retail gasoline prices jumped as much as 10 cents a gallon within days of the invasion, even though that gasoline was refined from crude oil purchased weeks earlier at much lower prices.
The industry argued at the time that such rapid increases were intended to cover the anticipated higher replacement costs of crude oil and to reflect the greater influence of spot and futures markets, where prices react almost instantaneously to world events.
But such explanations didn’t satisfy regulators.
The Department of Justice launched an investigation into the price hikes on Aug. 6. After interviewing industry executives, the department took the further step of issuing subpoenas for company records.
Several states have pressed similar investigations, though California deferred to the feds. “All of the prices were going up pretty much in unison, and the question arose: Was there a possible antitrust violation? Did they get together and raise their prices in a conspiracy?” said Joe Bizzaro, spokesman for Florida Atty. Gen. Bob Butterworth. Florida issued subpoenas to 16 major oil companies operating in that state.
Analysts and industry observers doubt that the investigations would turn up evidence of an actual back room conspiracy. “They don’t need to collude,” said Ed Rothschild, director of energy policy for Citizen Action, a Washington-based consumer group. “Communication is so readily available, they are aware of the pricing decisions they and others make in the marketplace all the time.”
Short of finding conspiracy, there’s little the federal government can do about the rapid price run-ups.
Lieberman is proposing a federal law that would regulate price hikes, similar to a law in New York that prevents retailers from raising prices faster than their costs increase. The industry opposes the measure.
In New York, the state attorney general’s office is investigating whether petroleum refiners or marketers violated the price-gouging law, and subpoenas were issued to service station operators.
But initial results of the investigations suggest the limits of such laws. Investigators found that retailers were merely passing on wholesale price hikes, said Edward Barbini, a spokesman for New York Atty. Gen. Robert Abrams. “We don’t see a widespread pattern of (price-gouging) at this time,” he said. The state’s law does not extend to wholesale price hikes, said Edward Barbini, a spokesman for New York Atty. Gen. Robert Abrams.
PUMP PRICES: Average retail and wholesale prices of regular and premium unleaded gasoline in Los Angeles, including cash and credit card prices and taxes.
Source: Lundberg Survey / Los Angeles Times
