Fuming drivers shouldn't hold breath High gasoline prices expected to persist

November 25, 1990|By Blair S. Walker

The repercussions from Saddam Hussein's military excursion took little time to radiate from the Kuwaiti desert to the pocketbooks of Maryland motorists and business people.

Unleaded regular gasoline that sold at self-service pumps for an average of $1.08 a gallon on Aug. 2, the day Iraq invaded Kuwait, was selling for $1.13.2 just four days later, according to the Automobile Club of Maryland. By Nov. 9, it cost an average of $1.40 to buy a gallon of regular unleaded.

But statistics provided by a petroleum consumption publication, the Lundberg Letter, indicate that nationwide, prices for gasoline have begun to fall, dropping an average of a penny on Nov. 16. With crude oil prices on the wane for now, could Maryland gasoline prices possibly return to pre-invasion levels?

One school of thought, to which State Comptroller Louis L. Goldstein subscribes, holds that gasoline prices "never go down, they always go up with regards to the price of a barrel of oil."

"It's very rare that the price of gasoline goes down," Mr. Goldstein says.

Others, like Chicago energy consultant Phillip O'Connor, say Free State residents may once again dish out $1.13 for unleaded regular -- it's just not likely any time soon.

"I think it goes to the point that pricing reflects replacement costs -- that's both the expected and the actual price that retail operators have to pay to replenish their stock," Mr. O'Connor said.

"As long as you have volatility out there, where you have $2 and $3 shifts every day in the price of crude, that represents a very unsettled situation. That means it's rather unlikely that gasoline prices will fall for some period of time."

That uncertainty wouldn't evaporate even if a non-military solution to the Iraq-Kuwait stalemate could be achieved, Mr. O'Connor said. Also, there's the question of whether Iraq's embargoed oil would be brought back into the world market.

Lundberg Letter publisher Trilby Lundberg said the $1.13-a-gallon level would probably become a distant memory, like 30-cent gasoline.

"Even if prices head downward, they might not pinpoint the same low levels" because of lingering insecurities affecting oil marketers, Ms. Lundberg said. "It's impossible to predict what oil prices will do in any scenario."

Two primary factors were behind the Nov. 16th penny drop in the price of gasoline, Ms. Lundberg said: Declining crude oil prices and the end of the summer driving season.

Maryland drivers appear to have adopted one common approach in dealing with spiraling gasoline prices. Aside from muttering an invective or two at the gas pump, statistics indicate they are still blithelymotoring along with no appreciable change in their driving habits.

In September, more than 166 million gallons of gasoline were sold in the state, an increase of almost 400,000 gallons over September 1989, based on records kept by the Motor Vehicle Fuel Tax Division of the State Comptroller's Office.

In August and July, months when gas consumption is generally high because of summer activity, drivers in the state bought about 185 million gallons in each month. That compares with about 182 million bought in August and July of 1989.

"We have not seen a taxable drop in gasoline sales as a result of the price increases caused by the Iraqi invasion," agency spokesman Donald Taswater said.

The fact that drivers have kept the pedal to the metal despite rising fuel costs isn't surprising, according to Richard M. Durand, a marketing professor at the University of Maryland School of Business.

"If we can go back to '74, when we had the first Arab oil embargo, we found that gasoline consumption patterns really didn't change in the short run," Mr. Durand said.

"Although I don't have any empirical data, I don't see where gasoline consumption patterns are going to change that much [this time], either.

"I guess what I'm saying is at least in the short run, gas consumption is relatively price-insensitive. Economists would use the term inelastic. I don't know whether people expect the price of gas to stay as high as it is right now."

With the price of gas remaining high and pump traffic still healthy, the state's gas station operators and owners appear positioned to make a killing.

But nothing could be further from the truth, according to Roy Littlefield, head of Maryland's Service Station and Automotive Repair Association. Before the Iraqi invasion, the state's gasoline dealers had an average profit margin of 5.16 cents on self-service unleaded regular, Mr. Littlefield said. That dropped to 2.87 on Aug. 10, and to a negative 1.3 cents on Aug. 24, he said.

"As the prices went up, the dealer markets went down, and once again the dealer margins were the lowest in the country," Mr. Littlefield said.

"It's a tragic situation out there right now, what's happening to the service-station community," he said. "While consumers have gotten mad -- and perhaps rightfully so -- that the prices have gone up, here we are on the firing line and perhaps facing tougher obstacles than we've ever faced before. People are taking out second and third mortgages on their homes, and we're afraid that a lot of dealers are going to lose their stations.

"So, these rising prices have not been an economic benefit to the dealers in this state."

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