How much?

Area gasoline dealers keep a close eye on profit margins and the competition


Each morning as Jeff Dolch drives down Ritchie Highway to get from his home in Arnold to the BP Amoco gasoline station he owns at St. Paul Street and Mount Royal Avenue in Baltimore, he pays close attention to the gas prices along the way.

If they are different than during his commute the night before, Dolch knows his first order of business is checking whether his own prices must change. Before he makes a cup of coffee, Dolch checks an Internet site to see how much his distributor is charging for gasoline that day.

Owners like Dolch then decide how much to charge their customers based on that figure and other factors, such as their competitors' prices, when their next shipment of gas is due and how much it will cost them to buy it.

Gasoline prices are determined by a sequence of events that starts at the futures markets, as men and women on the trading floor yell and wave slips of paper in their hands, and ends in customers' wallets. It is affected by supply and demand for crude oil, gasoline taxes, wholesale prices, and a host of other variables.

But for everything that goes into setting the price of gas, it boils down in part to a basic business decision that's far removed from corporate offices and market trading floors. In an industry with slim profit margins, how high can one gas station afford to raise its prices without losing customers to the station across the street? It is a decision facing station owners across Maryland and the country with gas prices increasing.

Dolch knows the price of the day by 8 or 8:30 each morning. He grabs a long stick with a suction cup and changes his signs manually, a task that has become routine lately. Dolch has had to change the sign seven times in nearly three weeks.

"You have to check those prices," Dolch said. "They change so much now."

The average retail price for gas in Maryland was about $3.03 yesterday, compared with $2.22 a year ago, according to The national average was $2.91 yesterday, up from $2.22 a year ago.

Experts say most of the factors that set those prices are determined in the futures markets, particularly the New York Mercantile Exchange, as buyers and sellers trade crude oil and petroleum products such as gasoline and heating oil. Basic supply and demand in the market causes the price to rise and fall. Crude oil prices broke a record $75 a barrel last week - they settled 45 cents lower at $72.88 a barrel yesterday on the exchange.

"If there are a lot of thirsty buyers in the market who need gasoline and there's not a lot of gasoline to go around, that price will get bid up," said Michael Burdette, a senior analyst at the U.S. Energy Information Administration.

The United States imports about 60 percent of its daily petroleum consumption in the form of both crude oil and products, Burdette said. Americans use about 20 million barrels a day of petroleum products, importing 13.5 million and exporting a million, he said.

With so much of the crude oil and products being imported, concerns in the world market cause prices to rise. Angst over a possible military conflict in Iran, for instance, is driving the price of gas, along with violence on the oil fields in Nigeria, experts said.

`A lot of uncertainty'

"There's a lot of uncertainty in the world of oil. That uncertainty is always there, it's just a question of how much people focus on it," said Frederic H. Murphy, a professor of management science at Temple University.

The cost of crude oil represents 55 percent of what consumers pay at the pump, according to the U.S. Energy Information Administration. Another 22 percent comes from the cost of refining, 19 percent from taxes (on average, about 44 cents per gallon goes to state, federal and local taxes) and 4 percent from marketing and distribution, according to the administration.

Baltimore's petroleum products go through refineries in St. Croix, Venezuela or along the Gulf Coast, Murphy said. While some gasoline arrives here by ship, most comes via the Colonial Pipeline, which carries gas from Houston to New York and points between. It is then put into storage tanks, and distributors take it to gas stations around the region.

Rob Rinehart, director of gasoline trading for Royal Farms, tries to save money by cutting out the middleman and purchasing some of his gas directly from the refineries. He either has it shipped through the Colonial Pipeline or buys it at the terminals in Curtis Bay, then hires a local trucking company to transport the gas directly to his stores in Maryland. Royal Farms has 75 stores that sell gasoline, most in Maryland.

"I'm just trying to take out that ... penny or two that the wholesaler's making," Rinehart said. "Every fraction of a penny adds up."

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.