12/27/05 — Gasoline wholesalers say their prices are up too

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Gasoline wholesalers say their prices are up too

By Bonnie Edwards
Published in News on December 27, 2005 1:53 PM

Motorists could pay more at the gas pumps in January, not just because of wholesale prices this time, but because of a state tax increase.

Gasoline prices in November dipped to almost $2 a gallon, but they headed back up again this month.

Wholesalers and station owners expect the prices at the pumps to go up a bit more before they stabilize. They say they understand consumers' concerns about increasing costs. They are paying more, too, when they pick up their supplies at the terminal.

"We're not the evil empire," said Dillon Wooten of Wooten Oil Co. of Goldsboro. He delivers gas to two stores in Wayne County and nine others out of the county.

Wooten said the expected increase in the gas tax this January is linked to the increased price he is currently paying at the wholesale pump. The state General Assembly indexed the gasoline tax several years ago so that the tax goes up when the wholesale price increases, he said.

"It's a two-edged sword," Wooten said. "If the price goes down, the tax goes down."

North Carolina officials adjust the tax every six months, and that was done in July. That adjustment increased the tax by a half cent.

Wooten said since July the state tax has been 27.35 cents per gallon. He said he expects it will go up in January.

He buys Citgo brand gas for his stores at the Wayne County Fairgrounds and in Fremont. He said the price he pays is traded as a future on the New York Mercantile Exchange.

Purchases are made in advance based on a price determined through bidding. Trading drives the price up and down. Companies buy the gas at a set price and then determine what additional cost they will pass on to consumers to make a profit and cover expenses.

It's like an auction, Wooten said. More demand increases the base price and reduces available profit margin.

For instance, Wooten said he heard the cost of concrete is going up because China is buying a lot of it for dam construction.

"There are more buyers than sellers," he said. "It's like anything else."

It's a no-win situation, said Judson Pope of E.J. Pope and Sons in Mount Olive. He said he has to pass along the cost when the wholesale price he pays for the gas goes up again.

"We get tied in with Exxon and BP, because we represent them on the street," he said. "It's swinging so much, I'm having trouble adjusting my mind to it."

He said the prices swing a lot between November and January when he looks back over his gross margins for the past five years. He said it's a normal trend for the wholesale gas price to "bottom out" in November.

And it did.

He said now that the wholesale prices are increasing, he has raised his prices a nickel.

But they need to go up a dime, he said.

"I've got a bunch of places that are not doing well," he said.

Pope said he thinks several factors are driving the wholesale prices back up.

Inventories are declining based on last year this time, he said. The U.S. has 10 million fewer barrels this year.

Pope also said less product is going into the refineries, which are now operating at about 90 percent capacity.

"I don't know if that is because less is coming from overseas or because there's less production here at home," he said.

Add to that the fact that the holiday season and the cold weather in the Northeast are diving up demand, and you have all the ingredients for a price jump, Pope said.

"If it gets cold in the Northeast, it makes the price jump just based on rumor and speculation on how long it's going to be cold and how much diesel they've got to make," he said. "Demand is up all over the world. It's just demand and supply."