Gas station owner doesn't enjoy increases, either

Customers simmer, profit margin shrinks as prices surpass historic highs

Katrina's Wake

September 01, 2005|By Laura Smitherman | Laura Smitherman,SUN STAFF

Farooq Zahid got the e-mail sometime after supper Tuesday night from his gasoline supplier, went to the BP station that he owns in Anne Arundel County to receive a new shipment and changed the numbers on the billboard sign at midnight. Then he braced himself.

The sign read $3.18 for a gallon of regular.

"This is a crazy business," Zahid said yesterday morning. "One lady called and cursed me out. Even my regular customers, those who came, they didn't say anything, but I felt it."

While the average price of regular gasoline in Maryland was $2.66 a gallon yesterday, according to the AAA motor club, dozens of gas stations around Maryland and other states cracked $3 a gallon, up from just a handful across the nation earlier in the week. Regular gas is the lowest retail grade and the one most drivers use.

Some gas stations not only surpassed $3 but zoomed past the inflation-adjusted, all-time high of about $3.10, set in 1981. Zahid, who sets his prices based on what BP-Amoco and his supplier tell him, raised regular gas a staggering 50 cents in one day.

The gas-pump milestone has drivers grousing and station attendants quaking, but industry analysts warn that prices will continue to rise because of reports this week that Hurricane Katrina damaged refineries, oil rigs and pipelines in Louisiana and the Gulf of Mexico.

Retail prices, not adjusted for inflation, first went from pennies to more than $1 a gallon in 1979, after an Iranian revolution caused shortages of crude. Less than a decade earlier, an Arab oil embargo had led to widespread shortages and long lines at the pump. Popular consumer sentiment then was that oil companies had used the crisis to get prices over $1 a gallon.

Prices jumped again after the Persian Gulf conflict in 1990 and then after the United States invaded Iraq, crossing the $2 barrier in May 2004. Prices have shot up over the past year as supplies are further stretched by booming economies in China and elsewhere and by dwindling refinery capacity.

Some analysts say $4 a gallon might be on the horizon, though no one knows for sure.

"We'll have escalating prices for whatever supply there is available," said Douglas Ober, chief executive of Petroleum & Resources Corp., an investment fund that mostly owns oil companies. "We'll know better in the next couple of days the extent of damage from the hurricane, and then we'll have some idea when and if prices will start coming down. How high will they go? I don't have a clue about that."

As retail gas prices nearly quadrupled, in raw dollars, over the past three decades, economists have speculated whether driving habits would change.

In the mid-1970s, most Americans said they would "stop driving" if gas prices reached a dollar a gallon, according to the Harris Poll. While demand did drop after gas prices surpassed the $1 mark, it wasn't because consumers drove less but because cars became more efficient and used less gas, said Bruce Wrenn, a professor of marketing at Indiana University.

Americans expressed the same sentiment about $2-a-gallon gas, but again, they didn't cut down on their time behind the wheel, Wrenn said.

"This could be the threshold price at which some people will change their behavior," he said, "$3 could be the magic number."

At Zahid's BP station yesterday, some drivers looked up at the price and promptly drove off. Others said they were filling their tanks before prices climbed higher. Most shrugged off the sticker shock, saying they had no other choice.

Linda Dinoto of Ellicott City paid more than $50 to top off her Toyota Sequoia, which has a V8 engine. She was making one of her frequent trips to visit her mother, who lives in a retirement village near the station.

"I heard as I was pulling up on the radio that many places were above $3 a gallon, and I thought, `Oh well,'" Dinoto said. "I don't think it's going to stop people from filling up their tanks. I mean, I'm going to do what I've got to do."

Zahid said he expects the impact at the pump will ripple through his business and personal life. He first felt the pinch when he filled up early yesterday morning, ruing that he had forgotten to do so before he increased his own prices.

He canceled plans to drive to Ocean City for a vacation this weekend because the gas tab would be too expensive. And he has begun to wonder whether his station will survive, as the higher prices cut his profit margin and drive off customers.

"If the prices keep going like this, I'm going to be bankrupt in three months," Zahid said, standing among the pumps, all of which were empty at the time. "And people blame me for ripping them off."

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