Maryland gas prices climb toward — or past — $3

Rise cuts into profits of driving-dependent businesses

December 07, 2010|By Michael Dresser and Gus G. Sentementes, The Baltimore Sun

The holiday season tends to bring a surge in business to businesses such as Beefalo Bob's Catering, but this year it's bringing less joyful tidings: $3-a-gallon gasoline for the first time since 2008.

"The fuel charge is really affecting the business," said Carole DiMartino, vice president of the Pasadena company that caters weddings, parties and other events. "The profit really isn't there."

Motorists all over Maryland are coping with an almost 12-cent jump in the average price of a gallon of gas over the past week, but the impact is magnified for driving-intensive businesses. With AAA Mid-Atlantic reporting the statewide average price at $2.98 Tuesday and showing no sign of dipping, companies such as Beefalo Bob's are facing increasing fuel prices at a time when it is difficult to pass costs on to customers.

So why is it happening — and why now? Neil Gamson, an economist with the federal Energy Information Administration, said it has everything to do with the rising price of crude oil.

"What happens with the world supply-and-demand situation will ultimately affect what we pay at the pump," Gamson said.

In some parts of Maryland, such as Hagerstown and Cumberland, what we're paying at the pump is already above $3, as it is in higher-priced zones within the Baltimore Metropolitan area. MarylandGasPrices.com showed prices Tuesday ranging from $2.79 in Rosedale and White Marsh to $3.24 in the usually pricey precincts of Bethesda.

Ed Ellis, owner of Eastern Shore-based Ocean Petroleum Co., said many of the 100 stations he owns and supplies with gasoline, including several in the Baltimore region, are trying to keep prices below $3 a gallon, even though they may be losing money on credit card transactions because of the finance charges tacked on for gas station operators.

"Three dollars is a real psychological barrier to the consumer," Ellis said. "Many of our dealers are afraid to go above the $3-a-gallon level. Gasoline really ought to be around $3.10 to $3.15 right now."

But Ellis said that gas station retailers won't be able to hold the line on prices for long, and he expects many of his stores to go above the $3 mark in coming weeks. Ellis said he also expects to see gas stations charging more to buy gasoline with credit cards, to defray the fees that the credit card companies charge the retailer for the service.

"The economic realities are you'll see widespread $3 a gallon next week," Ellis said. "Dealers can't afford to be below $3. They're losing money on every gallon they sell if it's a credit card purchase."

The national picture doesn't look much better. AAA noted that the average U.S. price of gas hit its highest level in 777 days on Tuesday. Tom Kloza, chief oil analyst for the Oil Price Information Service, an industry data source, said there is a 50/50 chance that the national average price of gasoline will surpass $3 a gallon by Christmas.

For a company such as Beefalo Bob's, which operates 12-13 delivery trucks, those costs can add up. And it's not just what goes into the tank that is felt on the bottom line.

"It's affected the food costs. It's affected our liquor costs," said DiMartino. She noted that in the catering business, companies typically charge prices that they've quoted for customers well in advance.

Christine Delise, a spokeswoman for AAA in Maryland, said the rise in prices just before Christmas is a bit of an "anomaly." She said prices typically peak in the summer and taper off into the fall and winter. According to AAA, Maryland motorists haven't faced $3 gas in previous holiday seasons.

But Delise said AAA isn't expecting a huge impact on the holidays — in large part because people have in many cases made Christmas plans and are unlikely to change because of increases to levels they've seen before.

"We're anticipating Christmas travel should be good," Delise said.

If Maryland motorists take to the roads in healthy numbers, it may be because they've seen a lot worse. It was just 21/2 years ago, in the summer of 2008, before the economic recession cut deeply into American traveling habits, that the price of gasoline peaked at more than $4. But the downturn hit with a vengeance that fall, and the price of gasoline was $1.64 a gallon that Christmas, Delise said.

For some business owners, the return of $3 gas doesn't come as a surprise.

Haluk Kantar, chef at Cazbar, said the Turkish restaurant and catering business in downtown Baltimore is used to gasoline prices anywhere between $2.50 and $3.

"We expect that," he said. "It's just a cost of doing business."

What Kantar doesn't like is when suppliers try to add fuel charges to the costs of products. He said he absorbs the cost of higher fuel in his price structure and believes wholesalers should do the same.

"If not, we can find other suppliers," he said. "To me it's rather ridiculous to charge for gas."

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