Sifting Through the Gas Gouging Charges

Sept. 30, 2005 — -- Many lawmakers and angry drivers suspected price gouging when gasoline spiked past $3 a gallon in the wake of Hurricanes Katrina and Rita. But one energy expert insists the urge to blame gas station owners is misplaced.

"Right now, you could probably find a bunch of stations charging $3.50 or $3.60 per gallon that are barely breaking even," said Tom Koza of the Oil Price Information Services.

"The average retailer or distributor is making a margin of 4 to 5 cents per gallon above the wholesale price, so it's probably wrong to focus inquiries on the marketers because a lot of them are struggling to make a living."

Koza argues that wholesale prices are difficult to manipulate, because they are subject to intense supply and demand pressures. Although the average price of a gallon of gasoline is 89 cents higher than it was a year ago, crude oil prices have jumped about 33 percent.

The retailers most at risk when wholesale prices jump, he says, are those not affiliated with major oil companies.

"There are situations where you could have some retailers charging $3.60 and barely breaking even, while people in the same market charging $2.90 and making 30 cents per gallon profit."

The bigger companies, Koza says, have the luxury of scaling back on price spikes for fear of a backlash from consumers and potential litigation.

"Most major oil companies have enough sense to realize this is a PR nightmare. If they say prices are going to spike, they're going to get skewered both politically and with the public," he said.