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High gasoline prices in US, but limited impact

The national average is close to $3.05 a gallon – up almost 20 cents in the past two weeks.

By Ron SchererStaff writer of The Christian Science Monitor / May 9, 2007



New York

It has become one of those rites of late spring: Gasoline prices soar and Americans threaten gasoline boycotts, while elected officials promise investigations and introduce legislation to crack down on price gouging.

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Yes, the air is fragrant with plans.

The catalyst is a sharp rise in gasoline prices – up almost 20 cents a gallon in the past two weeks and about 85 cents a gallon since February. The national average is now close to $3.05 a gallon, about 10 cents a gallon higher than a year ago.

Not that prices are discouraging Americans from driving. In fact, demand for gasoline increased a robust 1.6 percent in April, according to the Energy Department. But the cost of tanking up has become so high that some gasoline stations report almost 80 percent of their customers are using credit cards to pay the bill.

Economists worry that consumer confidence could be damaged, with potential implications for the economy. It could be worse, though: Wholesale prices have moved up so quickly that many service stations haven't had a chance to fully ratchet up prices at the pump. But even though wholesale prices have dropped in recent days, the costs are not likely to change much for the consumer.

"You can appreciate that the consumer is frustrated," says Sam Turner, president of Calfee Co. of Dalton, which owns about two dozen convenience stores and gasoline stations in coastal Alabama and Florida. "We are, too."

The frustration can be seen in a flood of e-mails proposing a national boycott of gasoline on May 15. Craigslist reports more than 300 postings by people urging others to join. On MySpace.com, scores of people are vowing to avoid the pumps.

E-mails about the proposed boycott claim that after a similar "gas-out" in April 1997, the price of gasoline dropped 30 cents a gallon overnight.

There is no data supporting this claim, says Neil Gamson, an energy price analyst at the Energy Information Administration. From February to May of 1997 is "one of the most stable periods," he says.

Facts don't seem to matter to people calling for gas boycotts, says Barbara Mikkelson of Snopes.com, which debunks urban legends. She says the hottest topic on her site is people asking about the gas-out. "People are putting together the cost of their vacations. And they are realizing that gasoline is a huge part of the family budget, and they say, 'Wow, we're mad as heck, and we're not taking it anymore.' "

In Washington, the rising cost of gasoline seems to have struck a chord. On May 6, Sen. Charles Schumer (D) of New York called for an investigation by the Government Accountability Office (GAO) on why refinery capacity hasn't kept up with demand. "Are US oil companies under investing in domestic refining capacity in order to purposely keep the market tight and exploit market disruptions for profit potential?" he asked in his press release.

On the House side, Rep. Bart Stupak (D) of Michigan, who sits on the House Energy and Commerce Committee, introduced with 93 cosponsors this February legislation to crack down on price gouging. The Senate has also introduced antigouging legislation.

Don't blame us, say the gasoline retailers. Mr. Turner, who is also the chairman of the National Association of Convenience Stores (NACS), says the wholesale price has risen so fast that he is now selling gas at 17 cents below his cost. "At some point, we have to catch up if we want to stay in business," he says.

In fact, NACS says that credit-card companies now make more money ($6.6 billion in fees) on gasoline sales than the convenience stores do ($4.8 billion).

In the past, as gas prices climbed, an increasing number of Americans "conveniently forgot" to pay. In 2005, this amounted to $300 million of gasoline. But since then, more stations are requiring people to pay in advance. In 2006, theft dropped to $122 million.

One of the reasons for the decrease in theft may be consumer education. In Indiana, where gas theft has steadily risen for the past three years, the Indiana State Police has tried to get people to use locking gas caps so fuel can't be siphoned, says First Sgt. Brian Olehy.

That message, repeated in other states, has resonated with Drew Eggers, a mint farmer in Meridian, Idaho. "When the price of gas goes up, you've got to watch your vehicles where they're parked and watch your gas and diesel barrels and keep them in well-lighted areas," he says.

Analysts are hoping that the worst of the price rises may be over. In the first quarter, imports of fuel were slow. But attracted by the high price, they are now flowing into the country. At the same time, refiners are cranking up production of the summer blend of gasoline.

"Historically, gasoline prices peak around Memorial Day and then fall off," says Brad Proctor of GasPriceWatch.com. "Based on the raw price of oil, prices should be dropping 15 cents to 18 cents a gallon."

Alison Snyder contributed to this article.

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