Published: May 08, 2008 09:13 am         

Small gas stations squeezed by high costs, stagnant demand

NEW YORK — Rising crude oil prices and stagnant gasoline demand are combining to push some small gas stations into insolvency, the owner of a petroleum distribution company in Texas told a House committee on Wednesday.

"I can assure you that times are tough," Bill Douglass, owner of Douglass Distributing, in Sherman, Texas, told a House Judiciary Committee hearing on gas prices, according to prepared statements.

Douglass, whose company owns 15 gas stations and supplies fuel to 150 others, said some of his customers have recently been forced to shut down and turn their keys over to him.

"In the past four months, 10 of the dealers to whom I supply motor fuel have relinquished to me the deeds to their ... business," Douglass said, noting that dealers were strapped because of the cost of maintaining fuel supply and high credit card fees. "They ... have reached the point where they can no longer service their financial obligations," he said.

Tom Kloza, publisher and chief oil analyst at the Oil Price Information Service in Wall, N.J., says many stations around the country are facing the same problem.

Small stations are struggling to turn a profit on gasoline. Wholesale prices have risen quickly in recent months ’ due to a near doubling in crude oil prices ’ but retailers have been unable to raise pump prices fast enough to keep pace. Demand for gasoline has fallen this year as prices have pushed well past $3 a gallon into record territory.

"Consumers (have) become more price sensitive," Douglass said.

The average national price of a gallon of regular gas rose Wednesday to $3.618, according to a survey of stations by AAA and the Oil Price Information Service, within a cent of the record $3.623 a gallon set last week. Prices are expected to rise to an average of $3.73 a gallon next month, according to the latest Energy Department forecast.

While gasoline prices are up 19 percent from a year ago, the crude from which it's made has risen about 98 percent over that period, and it hit a new record of $123.70 a barrel on Wednesday. Refiners that pay more for the crude are raising the price they charge distributors for gasoline. And those costs get passed along to stations.

"When you read about earnings ... released by ... oil companies, remember that those profits were generated from business interests other than retail ... and that your neighborhood convenience store is not sharing in those profits," Douglass said.

Major oil companies own only 3 percent of gas stations, according to the National Association of Convenience Stores.

The average retailer earns a profit of about 1.5 cents on each gallon, Douglass said. Since the average retailer sells about 4,000 gallons of gas a day, their gasoline profit amounts to about $60 a day, or $23,300 a year, before taxes.

Retailers' gasoline profits are also limited by credit card fees, which average 7.9 cents a gallon, Douglass said.

Station owners such as Douglass say they make much higher profits from the sale of coffee, chips and soda than from gasoline. Many see gasoline as a loss leader ’ an item they make little money on but have to sell to attract customers into their convenience stores.

But with gas prices skyrocketing, even food sales inside the store are hurting, Kloza said. After spending $60 to fill up their gas tanks, customers have less to spend on Slim Jims and Dr. Pepper.

Retailers must pay thousands of dollars for each gas shipment before seeing a cent in return. The cost of buying 9,000 gallons of wholesale gasoline has jumped 26 percent to about $27,400 since 2006, according to Oil Price Information Service data Douglass cited.

"I don't know any other business where you put up $30,000 to make a couple hundred in profit," Kloza said. "It's a rugged, rugged, rugged business right now."