by Mike Sharkey
Staff Writer
If you own a car, it’s impossible to not have noticed gas prices that have dropped to the lowest level in 10 years.
The steady price drop started almost the day after the United States declared war on terrorist Osama bin Laden for masterminding the Sept. 11 attacks on the World Trade Center and the Pentagon. As bombs began falling on Taliban strongholds in Afghanistan, gas prices also started dropping. What makes this coincidence even more odd is the fact that history shows that when a Western country openly declares war on a Middle Eastern nation, the usual response is for Oil Producing and Exporting Countries (OPEC) to raise the price of crude oil, thus raising the price of gas.
Not so, this time. Not in Jacksonville. Not anywhere in Florida. In fact, gas prices have been dropping daily for several weeks now. At last check, most stations around Jacksonville were selling regular unleaded for between $1.01 and $1.05 a gallon. However, it’s even cheaper if you are willing to join one of the members-only retail clubs such as Sam’s Club or BJ’s Wholesale Club.
Harry Lewis, president of H. R. Lewis Petroleum Company, said there are several reasons for the price drop. First and foremost, the price of a barrel of crude oil is at a 10-year low, and second, there is a global recession. And, two other reasons are centered squarely on classic economic theories.
“What we have right now is that crude oil is under $20 a barrel,” said Lewis, who owns a Chevron and two Exxon stations. “The worldwide economy shows that we are purchasing less crude oil. We are also considered to be in, to some degree, in some type of a recession. It’s simple economics; when supply exceeds demand, prices drop.”
Until crude oil prices go up, the price consumers pay at the pump will continue to hover around $1. Locally, there is plenty of competition between the name-brand stations as well as the Gate stations and the Racetrac stations.
Competition is also strong from wholesale retail clubs who thrive on selling grocery store items in bulk packages. Instead of buying an eight-pack of paper towels, the wholesale clubs sell them in packs of 30. Lewis calls the wholesale clubs “Big Box Retailers” and recently they have entered the gas business. Because they offer so many other products — all of which can only be purchased after joining the club — selling gas at ridiculously low prices isn’t a big deal to them.
“These grocery chains are using gas as a draw,” said Lewis. “They are really passing on the bottom line.”
Making matters worse for gasoline retailers like Lewis is the fact that wholesale retailers are not concerned that they are taking a loss at their gas pumps.
“They are selling gas at or below cost to draw people in or get them to buy a club membership,” said Lewis, adding that their bottom of the barrel prices force him and other gas retailers to keep pace or lose business. “The question for me is, do I let them have my customers or do I compete?
“The new players in the marketplace are using gas as a draw for business. People go in and buy $100 worth of groceries. Then they think since they are already there, before they leave they fill up their tank with gas. Since it’s a few cents less than anywhere else, they walk away with a good felling.”
While the consumers are the beneficiaries of the price war, oilmen like Lewis are taking a beating. If he was strictly selling gas, Lewis would be struggling to stay in business with prices so low.
“History shows that 30-40 percent of your gross income comes from gas,” said Lewis. “Right now, there is no profit in gas. A dollar a gallon? That’s under the [wholesale] cost of that gas.”
The question then is: How low will the price of gas drop? Will we see the days of 79 cents a gallon for gas, something that hasn’t happened since the 1970s?
“In my opinion, it’s pretty close to as low as it can go,” said Lewis. “Crude prices will back up. OPEC will not allow the price of a limited natural resource to continue to fall. Eight to 10 years ago, it was $10 a barrel. I see the price getting back to $25 a barrel.
“The gas and diesel fuel market is driven by the fear of what may happen. Right now, there is not a threat on the world supply of crude oil. The question is, will the world economy continue to grow?”