Gas pains

By William Kenny
Times Staff Writer

Northeast Philadelphia residents like other Americans are feeling the pain at the pump once again as gasoline prices last week rose to an all-time high just in time for the summer vacation driving season.
According to figures released on May 21 by the Energy Information Administration — the data-compiling arm of the federal government’s Department of Energy — the average price for regular unleaded gas had rocketed 11.5 cents in the previous week to an average of $3.22 per gallon nationally.
Last week’s price, when adjusted for inflation, essentially matched the all-time high reached in March 1981, when the national average peaked at $1.42.
Locally, meanwhile, gas stations from Somerton to Oxford Circle were posting prices as high as $3.20 a gallon. Philadelphia prices as a group were about a dime higher than the same time last year and a quarter more than a mere month ago, according to data compiled by a popular consumer advocacy Web site.
Yet, said Jason Toews, co-founder of PhillyGasPrices.com and its parent site GasBuddy.com, folks aren’t necessarily responding to the increases as one might expect. Gasoline demand is not subsiding.
"An interesting phenomenon we’re seeing this year is people are becoming desensitized to higher gas prices," Toews said. "People are budgeting more and spending more on gasoline. It’s not the shock it was when we first reached three dollars a gallon after Hurricane Katrina."
Toews and partner Dustin Coupal founded Minneapolis-based GasBuddy.com in June 2000 as a way for consumers to exchange information about prices in their areas. Since then, the concept has grown into a network of 180 localized sites in the U.S. and Canada serving 1.2 million registered members and 4 million different visitors a day.
PhillyGasPrices.com has 15,000 to 20,000 registered members and receives about 50,000 page "hits" per day, according to Toews.
Users of the site report posted prices as seen in their communities, including the name of the station, location and time observed. Prices older than 36 hours are removed from the site on a rolling basis, so the information stays fresh. In addition, the site maintains a user forum that has seen 25 million message posts since January 2001, making it one of the largest bulletin board-style forums on the Internet, according to the site administrator.
"On our forum and via e-mail, we hear it all the time. People are frustrated and angry with the oil companies and gas stations," Toews said.
Yet, though some say they intend to start using public transportation more or carpooling, many others complain that such measures are impractical. Meanwhile, they lament the apparent decline of the automobile as a symbol of American mobility and independence.
Everyone, it seems, has their own ideas of why prices keep going up. In fact, the finger-pointing extends even to industry insiders.
The current party line among oil companies and retailers contacted by the Northeast Times is that prices are high because gas inventories are low as a result of Hurricanes Katrina and Rita almost two years ago.
"In the aftermath of Hurricanes Katrina and Rita, policymakers asked our businesses to quickly repair and rebuild the refining infrastructure damaged along the Gulf Coast, representing a significant portion of the refining capacity in the country," Bill Holbrook, spokesman for the National Petrochemical and Refiners Association, wrote in response to a Times inquiry.
"We responded by directing the skilled labor and resources to the region, and that took away from the resources that would ordinarily have been used to address scheduled routine maintenance at other facilities around the country."
In turn, Holbrook explained, maintenance at those other facilities was put on hold. Now that the Gulf facilities are coming back online, he continued, oil companies have had to perform catch-up maintenance at other facilities, thereby reducing gasoline production.
Decreased production has led to decreased inventories and higher trading prices on the commodities market, Holbrook said.
Ross DiBono, executive director of the Northeast Philadelphia-based Pennsylvania Gasoline Retailers Association, echoed Holbrook’s explanation. But he also noted, as do consumer advocates, that big-oil company earnings have been setting records in recent years.
Earlier this month, Philadelphia-based Sunoco, the largest oil producer on the East Coast, reported a 7.6 percent gain in first-quarter 2007 operating profits over last year, despite construction at its local refineries that slowed production well below 2006 levels.
The correlation of prices to profits has led to calls for Congress to launch an investigation into the practices of the industry. The Democrat-controlled U.S. House of Representatives already is working on multiple pieces of legislation to address gas prices, according to Rep. Allyson Schwartz (D-13th dist.).
"With the price of gasoline, we did go through a crisis in the seventies, but this is different because we’re using more gasoline and we’re relying heavily on foreign oil," the Philadelphia lawmaker said.
On May 22, the House overwhelmingly passed a bipartisan bill to authorize the Justice Department to take legal action against foreign state-controlled oil producers — including members of OPEC — that collude to limit the supply or fix the price of oil.
On May 23, the House passed by a 2-to-1 margin a bill that would give the Federal Trade Commission the authority to investigate and punish companies that engage in so-called price gouging, or those that artificially inflate gas prices. It also would give states the authority to sue wholesalers or retailers that engage in such practices. Schwartz co-sponsored the bill.
The same day, during a hearing of Congress’ Joint Economic Committee on oil industry mergers and gas costs, an FTC official testified that the commission has not found evidence of illegal business practices by companies resulting in the recent price increases.
Both House measures must pass the Senate before reaching the president’s desk. According to Schwartz, President Bush has said he would veto the bill calling for the FTC to crack down on price-gougers.
The congresswoman believes that the foreign influence in the industry, as well as the Bush Administration’s failure to enact a "comprehensive energy strategy," is driving gas prices up.
"The way to reduce reliance on foreign oil is more exploration on our coasts, but for the long-term, the way is to reduce our consumption, and we’re playing catch-up on this," Schwartz said. "There’s no way to drill ourselves out of this problem."
The legislator says she supports raising the fuel-efficiency standards for automobile to 35 miles per gallon, and believes that by 2020, 20 percent of our energy must come from renewable sources.
Further, she is sponsoring an effort in the House to create incentives for the design and construction of commercial buildings with higher energy efficiency.
Also, the House earlier this year voted to withhold $14 billion in taxpayer subsidies to domestic oil producers, citing record combined profits of $125 billion in 2006 for the six largest companies.
Holbrook, the oil producer association representative, says that profits enable oil companies to "reinvest in their facilities in the way of adding new capacity, upgrading equipment and incorporating newer, cleaner technologies."
He insists that market traders, not the companies, dictate prices just as "the farmer does not set the price for a bushel of corn, nor does the rancher set the price of beef on the hoof."
DiBono, the gas retailers association leader, notes that many oil producers are also in the distribution end of the business and employ a full wholesale-pricing schedule dependent upon geography and customer.
Other factors being equal, DiBono said, retailers in one town or one part of the city will pay more per gallon than retailers in other areas. Sunoco, for example, charges more in South Philadelphia than in the Northeast, he said.
Similarly, distributors such as Sunoco may employ tiered systems, in which they sell a certain portion of their supplies at a certain price to Sunoco stations and another portion at a different price to "non-branded" stations.
DiBono claims that retailers and motorists are both at the mercy of the wholesale prices.
"Oil companies know we haven’t hit the price where people say ‘uncle’ and change their driving habits," DiBono said. "The bottom line is oil companies are raising prices because they can."
Still, DiBono believes that last week’s prices will be the highest that consumers will see this summer as crude prices fall and refineries are returning to normal production levels.
Meanwhile, some analysts have warned that high fuel prices could lead to a broader economic slowdown that would, in turn, reduce fuel consumption.
Toews, the consumer Web site creator, has done his own bit of analyzing in recent years and observed that retail prices always seem to rise at the same times of year, despite natural disasters like hurricanes and civil factors like the 9/11 attacks or the War in Iraq.
"We usually see prices rise from February or March through May, then stabilize in June," he said. "Typically, they start to increase again at the start of July and through August. Usually, in the first couple of weeks of August, they peak."
Prices don’t exactly drop during the off-season, however.
"We see slight declines, but they never match the increases," he said. ••
Reporter William Kenny can be reached at 215-354-3031 or bkenny@phillynews.com