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Cheaper Gas, So What?

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By RUSSELL RAY

rray@tampatrib.com

Published: October 25, 2008

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 pump prices, motorists and businesses are paying $1 a gallon less for fuel than during the summer. Gasoline prices in the Tampa Bay area are averaging $2.79 a gallon, down from a high of $4.01 on July 16, according to AAA.

But 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 cost 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's tank before prices began to fall. Now it costs him about $65. The savings are 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 encouraged 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 94 cents a gallon, or 25 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 56 percent to about $64 a barrel.

Gasoline prices haven't fallen nearly as fast. During the same period, gasoline prices in the Tampa Bay area have fallen 30 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."

Gas 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."

Some motorists remain wary of gas prices 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 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 Organization of Petroleum Exporting Countries said Friday that it will slash oil production by 1.5 million barrels a day to balance supply with demand and stem the decline in oil prices.

But Cordier said he expects gas prices will continue to fall because OPEC's cut in production was already reflected in the price of gasoline before Friday's emergency meeting.

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

GAS PRICES

Regular unleaded in the Tampa Bay area:

$2.79 Friday

$2.83 Thursday

$3.72 a month ago

$2.80 a year ago

$4.01 July 16 (record high)

Source: AAA

Reporter Russell Ray can be reached at (813) 259-7870.

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