Sudden relief at the gas pump

Prices dip below $2 as demand ebbs and supplies surge

November 22, 2005|By PAUL ADAMS | PAUL ADAMS,SUN REPORTER

There's a war going on along gasoline alley in Millersville that mirrors one taking place on street corners nationwide.

In the battle for customers, a half-dozen service stations and convenience stores are all trying to outdo one another to win the title of cheapest gas station. It's an industrywide price war being watched closely by motorists heading to Grandma's house for Thanksgiving this weekend, as well as by retailers, who are hoping consumers will forget their anxieties about rising fuel costs and hit the malls after loading up on turkey.

Prices at some Maryland stations have dipped below $2 a gallon, about $1.30 less than the peak immediately after Hurricane Katrina.

It's a situation that few economists or consumers would have predicted late last summer when Hurricanes Katrina and Rita wreaked havoc on the Gulf Coast, pushed fuel prices to record highs and threatened a repeat of the "rockets and feathers" pattern to prices at the pump. Historically, gas prices soar like a rocket in times of crisis and fall like a feather when conditions return to normal.

But an infusion of imported gasoline, changes in consumer behavior and old-fashioned political pressure combined to push prices down almost as fast as they shot up during three very unusual months for the oil industry.

"They [prices] have actually fallen a little faster than we would have expected them to," said Michael Burdette, a senior analyst for the Energy Department.

As of late last week, the Wawa store on Veterans Highway in Anne Arundel County was leading in the race to the bottom, having cut prices twice in 24 hours to a post-Katrina low of $1.999 for regular unleaded - the lowest price Marylanders have seen since March.

"You have to realize that in a month and a half, the price has dropped a dollar a gallon," said Michael Ditch, part-owner of the Benfield Citgo, which has been in business on Veterans Highway for more than 25 years. "We've never seen anything like that before."

Prices at some stations across Maryland have fallen even lower this week, marking a stunning reversal of fortunes for both travelers and retailers as an estimated 37 million Americans - including about 800,000 Marylanders - prepare to load up their cars or board planes for the holiday. Economists say the moderating of energy prices could curb inflation fears and help save what is expected to be a lackluster holiday shopping season.

Yesterday's average price for a gallon of regular unleaded was $2.19 in Maryland and $2.21 nationwide, according to motor club AAA. But a few stations in Maryland were posting $1.97 gas over the weekend, well below the $2.66 average days before Hurricane Katrina wiped out gas and oil production in the gulf.

Energy analysts credit a flood of gasoline imports, a 19 percent drop in oil prices, moderating demand and political pressure for driving prices down faster than many economists forecast a few months ago. Profit margins for refiners - which soared after Katrina and spawned hearings over price gouging in Congress - are tighter than they've been in months, energy experts said. Motorists are reaping the benefits.

"This was such a severe and sudden spike that it's hard to compare this to other things we've ever seen, and the decline is certainly unlike most other [declines] and was probably significantly influenced by the political pressure," said Severin Borenstein, executive director of the University of California Energy Institute.

However, the trouble isn't over for the economy.

Gasoline prices remain about 14 percent higher compared with a year ago, and the cost of natural gas and fuel oil - which have not declined nearly as much as gasoline - will send heating costs up by 50 percent for many homeowners. Those extra costs will slow growth in the economy and inevitably result in the creation of fewer jobs, said Joel Naroff, chief economist for Naroff Economic Advisors in Holland, Pa.

"We're still paying over $2 a gallon and that's still well above where it had been," he said. "It's a difference between being totally stressed out and just stressed out. The pressure is still on lower-income families, and on some middle-income families."

So far, the economy seems to have shrugged off the effects of higher energy prices and the cost of rebuilding after the hurricanes. The Conference Board, a nonprofit economic research group, said yesterday that its Index of Leading Economic Indicators, a measure of future economic growth, rose 0.9 percent in October, a modest but positive signal that the economy will grow this year. But Naroff points out that most homeowners have yet to get their first big winter heating bill. A cold snap now could put the brakes on holiday spending. Retailers are already beginning to discount heavily in hopes of spurring sales, he said.

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