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Lower Gas Prices Offer Businesses Little Relief

Tribune photo by JIM REED

Brian Ferwerda has two delivery vans and it was costing him $78 to fill each one before prices began to fall.

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By RUSSELL RAY | The Tampa Tribune

Published: October 22, 2008

Updated: 10/22/2008 01:23 pm

TAMPA - In an economy hammered by job cuts and lost investments, there is something that has consumers feeling good again: lower gasoline prices.

After enduring months of record high prices at the pumps, motorists and businesses are paying about $1 a gallon less for fuel than during the summer. Pump prices in the Tampa Bay area are averaging $2.87 a gallon, down from a high of $4.01 on July 16, according to AAA.

For some business owners, the sharp retreat in the cost of fuel hasn't done much to help the bottom line. In these tough economic times, wary consumers are hanging on to the savings created by lower pump prices.

"The downside is that no one is spending any money, still," said Brian Ferwerda, owner of Hudson Cleaners. "It's a Catch-22 that we're in."

What's more, the costs of food and other items, which skyrocketed as gasoline prices surged to new highs, haven't declined. Ferwerda is still paying the same high prices for the supplies he needs to run his business.

Ferwerda has two delivery vans, and it was costing him $78 to fill each one before prices began to fall. Now it's costing him about $65. The savings is nice, but it doesn't offset the profit lost to the drop in business.

"I'm probably going to close one of my stores," said Ferwerda, who has four locations in the Tampa Bay area. "I'm basically surviving on savings right now."

When prices spiked to $4 a gallon in July, Barbara Creamer, owner of Artistic Flowers in St. Petersburg, decided not to raise prices to offset the higher cost of fuel. When prices fell, Creamer was relieved.

"We're very glad to see it come back down," she said. "Now we're back in our comfort zone."

At less than $3 a gallon, the florist can make deliveries she couldn't make when gas was priced near $4 a gallon.

Still, the lower prices haven't led people to buy more flowers.

"It hasn't led to an increase in traffic at all," Creamer said. "The economy has pulled it down."

In the past month, the average price of regular unleaded has dropped 88 cents a gallon, or 23 percent, in the Tampa Bay area.

The lower prices stem primarily from a sharp decline in the cost of crude oil. Since July 11, when oil reached a high of $147.27 a barrel, oil has plunged more than 50 percent to about $68 a barrel.

Gasoline prices haven't fallen nearly as fast. During the same period, gasoline prices in the Tampa Bay area have fallen 28 percent.

Given the bigger drop in oil prices, some motorists say, the cost of gasoline should be much lower.

"Frankly, I thought they might come down a little quicker," Brad McCoy said as he filled his car with fuel at a South Tampa gas station. "I think the companies hold on to the higher prices as long as they can."

Pump prices haven't dropped as far as oil prices because refiners are recovering the profit they lost when oil skyrocketed to new highs this year, said James Cordier, president of Liberty Trading Group, a futures brokerage firm in Tampa.

"Refining companies took it in the shorts when crude oil went to $150," Cordier said. "Crude oil doubled when gasoline went up about 75 percent. Refiners got killed because they could not pass on that type of increase to consumers."

Although motorists are enjoying the decline in pump prices, some remain wary given the huge fluctuations in recent years.

Penny Herron, a soccer mom from Tampa who fills up her sport utility vehicle three times a week, said she isn't convinced that the lower prices will hang around very long.

"They're falling now, but they're not going to stay that way," Herron said. "I think it's a tease. It could be different tomorrow."

She might be right.

The president of the Organization of Petroleum Exporting Countries said this week that the oil cartel may cut production by at least 1 million barrels a day to balance supply with declining demand.

But Cordier said he expects gas prices will continue to fall because OPEC's potential cut in production already is reflected in the current price of gasoline.

"You're going to see gasoline in the next week or so come down another 15 to 20 cents," he said.

THE PRICES

For a gallon of regular unleaded in the Tampa Bay area:

•$2.87 Today

•$2.91 Tuesday

•$3.74 One month ago

•$2.79 One year ago

•$4.01 July 16 (record high)

Source: AAA

Reporter Russell Ray can be reached at (813) 259-7870 or rray@tampatrib.com.

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