Falling gas prices usher in summer travel season

May 25 2012

Memorial Day weekend ushers in the summer driving season. This year, motorists face significantly lower gasoline prices, and that should encourage more North Carolinians to travel, according to AAA Carolinas.

The Lundberg Survey published on May 21 found that gasoline prices were back down to a three-month low, nationally. That’s a national average of $3.78 per gallon, but North Carolinians enjoy a lower average price of  $3.55.

In a typical year, gasoline prices begin to rise in late May, as summer driving begins. This year, just the opposite is happening. Prices rose with international tensions in the late winter and early spring and are now falling.

Below, reporters contribute three different perspectives on the falling gas prices.

Station owners concerned about impact on business

While Chapel Hill gas prices have fallen during May, station owners are still concerned about price fluctuations hurting business.

Station owners are focused on being price competitive locally.

The Hess, Kangaroo, BP and Marathon stations in Chapel Hill have their prices at $3.68 or $3.69 a gallon, but there are still a few whose prices have not dipped that low.

Jean Adams, cashier at Run in Jim’s in Chapel Hill, said their business has been in a bit of slump because the station’s private owner set the price of gas 10 cents higher than any other station on Martin Luther King Jr. Boulevard.

Run in Jim’s price for Mobil regular unleaded gas is $3.79 a gallon.

“Business has been down because a lot of our customers are students, and there’s not many of them around anymore. Gas here is a little bit more expensive, too, but hopefully over Memorial Day weekend we’ll see some more folks stopping in here,” Adams said.

As Adams hoped, the higher price at Run in Jim’s has not driven away all customers.

Claire Anderson, a UNC student who bought gas at the station on May 23, said, “Nothing really changes for me as far as planning trips or driving around, because my car gets really good gas mileage. I just fill up wherever and whenever I need to.”

Down the road from Adam’s location is a Wilco Hess station that is selling regular unleaded gas for $3.68 a gallon.

Virginia Portrillo, cashier, said, “Business has definitely picked up in the past few weeks. We have the cheapest gas right now on MLK so we haven’t gotten too many complaints.”

John Fudge, a customer at the station, said he is planning more trips since gas prices went down and finding better ways to get the most out of the money he spends on gas.

“I actually live in Tennessee and work here so when it was higher I couldn’t really take too many trips home. With it being cheaper, now I can. My work truck uses diesel, so it’s expensive to fill regardless of the price but I have a small gasoline car and I’ve definitely been using that a lot more around town to save some money,” Fudge said.

Talal Joe, at cashier at a Marathon station, said, “When prices were up, we got less people coming in to buy soda, candy, cigarettes and that sort of stuff. We’ve gotten a lot more people in here lately and that’s always a good thing, especially with Memorial Day weekend coming up.”

Economists examine falling prices

Gas prices have been a central to America’s economy for decades.

For most, gasoline is considered an inelastic expense. That means, for the short run, there will continue to be buyers, no matter how high prices soar.

But according to an AAA Carolinas survey, gas prices in North Carolina have dropped almost a quarter-per-gallon since Memorial Day last year, which has the potential to induce a price-lowering ripple effect across the state. Prices have dropped 36 cents a gallon since April.

Eugenio Aleman, senior economist for Wells Fargo, said in the past month, the price of oil has dropped from $115 to $90 per barrel.

Mike Walden, an N.C. State University economics professor, says he has noticed two reasons for the falling prices.

“The first factor is that people have reduced their driving as a response to the high prices,” he said. “When demand shrinks, prices follow.”

He also attributes the fall to lower political tensions in the Middle East – from where the U.S. imports most of its fuel.

Aleman said the decline isn’t prevalent in all states.

“California is probably still in the $4 range. There are several factors in play: transportation cost from getting the fuel from the refinery to the gas stations, internal market conditions, the percent of mix-ins and the environmental regulations companies have to comply with,” he said, “all of which affect the cost.”

Both economists said gas prices are a good indicator of overall economic condition.

“U.S. consumers are very dependent on gasoline. It’s a very large component of our expenditure,” said Aleman. “The higher the gas price, the less money we have for other goods.”

Walden said gas prices have a broad reach in the U.S. economy.

“Higher gas prices tend to slow economic growth,” said Walden.

Aleman also notes how high gas prices overflow into U.S. industry.

“A large percent of our goods are transported via trucks. Higher gas prices mean reduced profits for firms,” he said.

But will the trend continue?

Walden thinks so: “I think prices will drop another 10 cents.”

Aleman is less certain.

“It all depends on what happens in the rest of the world,” he said.

Consumers see price differences based on location

Although gas prices are falling in the Triangle, the prices in Raleigh continue to be less than those found in Chapel Hill.

On May 24, the average gas price in Raleigh was $3.35 per gallon and $3.53 in Chapel Hill—an 18-cent difference.

“They’re so close to each other, it’s hard to believe there’s that much of a difference,” says Penny Rich, a Chapel Hill Town Council member. “I know there are big differences around the country, but county and region wide, that’s hard to believe.”

Tom Crosby, AAA Carolinas vice president of communications, says it is not unusual to see a price difference within such close distance. He says this trend has a lot to do with distribution, and it is part of the marketing strategy.

“Everyone sets a price they think the public will pay, and they may try higher prices and see if they get the same amount of business. If they don’t, they’ll lower prices, but when they can, they do,” says Crosby. “That’s why we see different prices in neighboring areas. That and certain stations buy from certain wholesalers, whose prices can differ, too.“

A National Associate of Convenience Stores (NACS) document also cites distribution costs as a reason for this difference in retail gas prices.

According to the document, being farther away from a wholesale terminal can have a significant impact on costs. “While most metropolitan areas are located near several wholesale terminals, retailers in more rural areas may be forced to drive more than 100 miles to obtain supplies.”

Carlton Carroll of the American Petroleum Institute further describes the reasons for this trend. He says requirements vary in different areas. Some places require a special blend of different gases, and this can cause higher prices, as the retailer must travel to more than one wholesale terminal.

“Demand for gas and the competition also matter,” says Carroll. “You have to consider how many gas stations there are in that area.”

Carroll says if there is a higher demand for gas, and people are willing to pay, then the retailers will charge that elevated price.

Deb Taguba of the NACS also attributes regional price differences to competition, but she thinks taxes are a large factor as well.

“Usually it’s taxes and if taxes in one county are a lot cheaper. Because taxes are a big percentage of cost for retailers,” says Taguba.

N.C. Energy Office spokesperson Seth Effron says the state motor fuels tax is 39 cents a gallon and the federal tax is 19 cents.

“No matter where you go, you’ll pay this much in state and federal taxes,” says Effron. “Different gas retailers all must have that same amount, which is about 61 cents.”  Retailers must consider this tax when pricing fuel for customers.

Business costs are another large part of this trend, according to NACS documents.

One document states rent is a considerable expense for retailers in some regions, and highly desirable locations cost more to operate. Other business factors cited in the document include whether the site is owned or leased, when the property was bought or leased and the terms of that contract. Each of these factors can contribute to costs required to sell fuel.

While this overall trend continues, another more favorable trend continues as well:

“The bad news is we all continue to pay a fairly steep price,” says Effron. “The good news is we’re paying less than we were a month and even a year ago.”

This article was written for the JOMC 253 Reporting class at UNC’s School of Journalism and Mass Communication.

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