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Correction to This Article
In a May 4 Style article, the name of the American Petroleum Institute's chief economist, John Felmy, was misspelled.

Caught Over a Barrel

Soaring Gas Prices Have Motorists' Wallets Running on Empty

By Don Oldenburg
Washington Post Staff Writer
Tuesday, May 4, 2004; Page C01

Jim Fuller pumps regular, priced at $1.749/10, into his Buick Riviera at Anderson Sunoco on Lee Highway in Arlington. He usually buys gas here or at the Citgo across the street.

"Whichever is cheaper," he says.

Jim Lomedico owns Anderson Sunoco in Arlington, which consistently offers the lowest price in its neighborhood. (Gerald Martineau -- The Washington Post)

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On this April afternoon, he's among a steady stream of customers who jockey for pump position at the Sunoco. Six or seven cars at a time line up. Over at Citgo, there are open pumps.

The reason: Sunoco is one cent cheaper than Citgo. One cent.

Fuller saves less than 20 cents filling up.

With the national average price of gasoline at $1.82, breaking all-time records for two straight months, a penny saved earns a crowd. People who wouldn't stoop to pick up a Lincoln head on the sidewalk drive miles out of their way or idle in lines to save a cent per gallon.

Clearly, three months into the "Gas Morass of '04," the cost of gasoline has become a national sore point -- or, should we say, soar point. Motorists survey service-station price signs and track where the cheap gas is -- cheap being a relative thing.

"It's important!" says Natalie Dristas, filling her Acura SUV at the Sunoco and watching the digits spin past $29 . . . $30 . . . $31. She will go out of her way to save a nickel on a gallon.

"I avoid like the plague any gas station in D.C.," says the Arlington mother, who drives her son to school into Georgetown. "Oh my God, they're like 15 cents more!"

If she's running on empty, she says, she'll buy a dollar's worth at a high-priced station "just to get to a cheaper station."

Jim Lomedico owns Anderson Sunoco. He sets prices. Over the years, he consistently has undercut the competition in close-in Northern Virginia by a penny or more.

"I operate on the theory that a lot of nickels is better than a few quarters," he says, his Sunoco shirt smudged with grease.

On this day, stations nearby are priced higher than Lomedico.

A couple miles east, two Exxons are selling regular for a penny more. A block west are Amoco and Chevron stations priced three cents a gallon more. Next door to them, it's four cents more at a Shell station.

Sure, drive to Woodbridge and you can buy regular at Wawa for $1.69. But along Columbia Pike in Arlington, not even four miles from Lomedico's, regular is 20 cents a gallon higher. In Chevy Chase, Wheaton and the District, it's anywhere from a dime to a quarter more. Don't go figure. There's no logic to gas prices.

A lot of unseen factors contribute to how prices vary from one station to the next, from block to block, neighborhood to neighborhood, state to state. Taxes, location, lease or rent, brands, transportation costs, wages, additives, more than you want to know.

Lomedico's cost on a gallon starts with the "tank wagon" price -- what he pays Sunoco when its truck fills his tanks. Included in that charge to him -- which he won't divulge -- are a federal tax of 18.4 cents per gallon and a Virginia tax of 17.5 cents (in Maryland, the state tax is 23.5 cents; D.C.'s tax is 20 cents).

He leases his station from Sunoco, another expense. Plus the localities' fees: Northern Virginia stations pay a 2 percent "metro tax" to help fund mass transit. Credit card purchases add another burden: About half of all sales are charged, and retailer fees run about 3 percent on each transaction -- almost a dollar for every $30 fill-up.

Then there's windshield wash at the pumps, paper towels in the bathroom and other incidentals that add up, says Lomedico. "And then somebody drives off without paying!"

"It is not uncommon for a guy to work for 6 to 8 cents profit" per gallon, says Harry Murphy, spokesman for the Washington, Maryland and Delaware Service Station Association, a trade group based in Bowie. That's about a dollar profit per fill-up. "It's getting brutal out there."

But the final calculation in gas prices is competition. "If you get a price increase, you can't go out there and put it on the pole until you've looked across the street and see what he does," says Murphy.

Add to that pricing equation the ripple effect of discount gas at independent stations that sometimes can price cheaper by buying off-brand on the "spot market" for less.

And warehouse sellers like Wal-Mart and Costco often sell gas below cost as a loss leader to attract business inside. "I don't think I could sell gas for $1.74 if I was in Haymarket next to a Sheetz or a Wal-Mart," says Lomedico, who calculates that the penny a gallon he sacrifices is made up in volume sales plus more business for his repair bays and snack shop.

After gas prices in the area went up three cents last Wednesday, Lomedico upped his price to $1.779/10. For a couple of hours, the Citgo beat him at $1.769/10, then matched him.

"That won't last," says Lomedico, determined to stay cheaper. "I got a lot of numbers I can put up on that pole."

Bypassing the Pump

"Join the resistance!" starts the message imploring angry Americans to boycott gasoline. Don't buy gas for a day! A week! Whatever!

When gas prices get dicey, consumers start blaming. Out come the angry posts on Internet newsgroups calling for people to stop buying gas for a day or stop buying from Exxon and Mobil stations to send a message to ExxonMobil Corp., the oil giant with the biggest sales.

"The only way we are going to see the price of gas come down is if we hit someone in the pocketbook by not purchasing their gas!" says one online activist.

But these "Great Gas Out" chain messages ("Send this to 30 of your friends and together 3 million of us will lower the price of gas!") turn out to be half-tanked rally cries.

The rah-rah rhetoric to fight the Evil Oil Empire has never worked since it started appearing in 1999, says Barbara Mikkelson, who with husband David founded Snopes.com, an online resource for debunking urban legends. Americans are addicted to gasoline. If they boycott the gas station on Tuesday, they'll be there filling up on Wednesday.

"It's just simply misplaced outrage," says Mikkelson. "We are accustomed to gasoline being a certain price and when it goes up there must be something terribly wrong in our world. There's got to be someone to blame."

Geoff Sundstrom, a spokesman for AAA, says consumers shouldn't blame the oil industry: "It's not that there is a conspiracy or any one or two oil companies have gotten together and decided to raise prices and make maximum profits. The issue is that the industry is really not the master of its own destiny."

AAA recognizes that crude oil is the driving force behind the high gas prices, says Sundstrom.

But what's a mishmash, he says, is clean-air regulations: Various laws currently require 18 blends of gas be sold across the country -- sometimes county by county, like in California where the average price for regular last week was $2.16. Four blends are sold in various locations in Virginia, Maryland and the District.

Those "boutique blends" are "almost like microbrewed beers," says Sundstrom. "They're made in small batches and are very expensive."

A Crude Calculation

Edward Cowan is talking gas as he reaches for the orange beef and spring rolls. At a banquet upstairs at Washington's Chinatown Garden restaurant, three dozen members and guests of the National Economists Club, a nonprofit educational foundation, wait to hear the American Petroleum Institute's chief economist, John Falmy, answer this timely question: "What's Up With Gasoline Prices?"

Up indeed. Between bites, Cowan, a club member, runs through his list of his favorite low-priced gas stations, from Kensington to Fredericksburg. The District resident includes the Sunoco in Arlington. "I think the idea that you're buying smart has as much appeal as saving the money," says the retired New York Times correspondent.

At the podium, Falmy's theories go straight to Big Oil's bottom line. As the national trade association of the oil and gas industry, API tends to get defensive whenever prices shoot up.

Who can blame it? The fuming public seems to have no doubt that the slick multibillion-dollar oil industry is manipulating the market for bigger gains. At every big price hike, even politicians call for "price gouging" investigations.

But Falmy brought impressive numbers. "Gasoline prices are the most known price in our economy," he says, arguing that everyone knows exactly what they paid for gas this morning but nobody knows exactly what they paid for milk. (He does not suggest that if we bought 20 gallons of milk every week, the price of milk -- expected to reach nearly $4 a gallon this summer -- might be on the tip of our tongues.)

"Does anybody know what the price of crude oil was yesterday?" he asks.

Someone says $30. Another, $38. "It was $37.60," says Falmy. "But how much was that in cents per gallon?"

Too hard even for "Jeopardy!," the question stumps this group of economists: "Fifty-five cents?" "Forty-two cents?"

Falmy says triumphantly that, as of the day before, the price was 89.52 cents. "That's roughly 40 to 50 percent of the cost of a gallon of gasoline," he says.

Get it? Follow the crude. That's the main culprit behind pump prices, not the industry. That's the API's take on the gas-price mess.

Add the next largest component: state and federal taxes. They average 43 cents a gallon, says Falmy. Now you're up to $1.33.

"That's the base cost of gasoline," he says. "Nobody has any idea. The fundamental problem we face as an industry is that the two most important components in why prices are up and down aren't known" to the public.

Subtract $1.33 from the average price of gasoline, $1.81 that day, and you've got 48 cents left. "Forty-some cents has to supply all the costs, plus some profit, to get it from the refinery to the consumer," he says.

But wait! That's not all. The price of gas is affected by wild-card stuff like war, a cold winter, a production shutdown in Venezuela, unrest in Algeria, additive changes in California, blackouts and pipeline problems. This year's all the worse with demand rising, lower oil production in war-torn Iraq, and OPEC nations cutting production while upping prices to a near 14-year high. It's "the 'Groundhog Day' movie -- you keep waking up to the same situation," says Falmy.

Someone asks Falmy to predict where gas prices are headed. These economists don't see an end. Demand simply outstrips production.

Falmy says due to antitrust laws, he's not allowed to forecast crude oil or gas prices. But he's willing to talk profits. In fourth quarter 2003, the industry made 6.3 cents on a dollar while all other U.S. industries averaged 6.7 cents. "We are a below-average profit industry," he says. "The arguments that you hear from people saying we're driving things up for higher profits are simply absurd."

Gas Gimmicks

But then high gas prices are known to fuel absurd ideas.

How else to explain increased sales of so-called gas-saving devices claiming to boost miles per gallon?

"Buyers really need to beware of these claims," says Chris Grundler, chief executive of the Environmental Protection Agency's National Vehicle and Fuel Emissions Laboratory in Ann Arbor, Mich. "We have tested over 100 of these over the last 20 or so years and have found that very few of them provide any fuel economy benefits. Those that did were marginal."

The hot fuel-saving technology this year is called the "Tornado." For $69, this air-swirling gadget installs in a car's intake and, supposedly, creates a "vortex" of air that results in more efficient combustion. Its ads say tests show the Tornado increases mileage from 11 percent to almost 29 percent.

Sound too good to be true? "Nobody can believe this!" says Jay Kim, president of Tornado Air Management, in Santa Fe Springs, Calif., the manufacturer.

Kim says sales are up like never before: "A lot of consumers just love it. Tens of thousands of them."

But the government doesn't love it. The EPA has tested similar air-moving gadgets and none worked. The agency evaluated the Tornado's data and found no reason to think it can improve fuel economy, says spokesman John Millett.

Automotive expert Pat Goss, who hosts "Goss's Garage" on WJFK-FM and NewsChannel 8 and is a regular on PBS's "Motorweek," has tested more than a thousand fuel-saving devices over 25 years at his auto repair business in Seabrook, including earlier and current versions of the Tornado. The best it tested was a 0.6 mpg increase; the worst, a decrease in fuel economy.

"We get these things all the time," says Goss. "Not one of them that we ever tested did anything significant."

Kim dismisses the EPA's remarks as a "big government thing. Nothing you can do." Goss's findings? "Hmm, really?" he says.

Another device called the FuelSaver-Pro promises to save up to 27 percent in fuel economy by realigning gas molecules using magnets boxed around the fuel line. Mark Ayoub, who markets the product on FuelSaver-Pro.com, says, "Sales have increased since gas prices have recently shot up."

But the EPA in November alerted the Federal Trade Commission that the maker of the $89.95 FuelSaver-Pro was making unsubstantiated claims by mixing results from different tests to boost its mileage claims.

The manufacturer, IRD International Research & Development in San Diego, did not reply to requests for interviews, but the FuelSaver-Pro Web site just changed its promotion.

Roger Crawford, a businessman and independent researcher in Midland, Tex., takes a different approach to fuel economy. He has just begun marketing a gas additive he calls "XtraMPG." He says it boosts octane, burns cleaner and enables motorists to get better fuel economy and buy less expensive grades of gas -- saving 10 to 15 percent overall on gas.

What's in XtraMPG? "Most of us know it as nail polish remover," Crawford says. "It is simple acetone, a nonhazardous organic chemical . . . rated at 150 octane."

Crawford says he'd be happy if everyone bought acetone and added it to their gas tanks. But since people seem reluctant, he's packaging it as XtraMPG.

The EPA hasn't tested XtraMPG. But the EPA's Chandler warns that consumers need to beware what gadgets and fuel additives they add to their cars -- especially with today's computer-controlled fuel-injection systems. "There are other, more practical ways to save fuel," he says.

The Word Gets Out

One way is locating cheap gas. Joe Matelis of Catonsville uses online sites to steer him to low-priced stations. He carpools in his 1999 Dodge Intrepid on an 80-mile round-trip commute to the District each day.

"I refuse to pay the escalated prices in the Catonsville area," says Matelis, who recently joined GasWatch.com and has been a member of GasBuddy.com. He buys gas now from a station in Southwest Baltimore about 3.5 miles out of his way.

Gas price sites such as on MSN.com's Auto page, AOL.com's CityGuide and GasBuddy.com increasingly are becoming useful resources. These free sites post street reports from "spotters," volunteers who track prices at specified local gas stations. To find cheap gas, consumers key in their Zip code or click on their state and check the reports.

Jason Toews, a computer programmer in Brooklyn Park, Minn., co-founded GasBuddy.com four years ago with grade-school pal Dustin Coupal, an ophthalmologist who shares Toews's obsession with pump prices.

The nonprofit site is now one of the most active gas-search sites, combining a network of 174 locale-specific Web sites, such as virginiagasprices.com, marylandgasprices.com and washingtondcgasprices.com. Since prices started spiking, GasBuddy has been getting 500,000 to 700,000 hits per week, says Toews. "Six months ago, we got about a third of that."

Consumers can find gas 10 to 15 cents cheaper just by driving a mile out of their way, says Toews. Some people are suspicious of the cheapest no-name gas stations, but he points out that their gas must meet the same federal minimum standards big-name brands meet, even though it typically doesn't contain the brand additives that help maintain cleaner engines. But who needs that every fill-up?

When he pulls into a cheapie and across the street people will be filling up for 10 cents more per gallon, says Toews, "you wonder why."

But are motorists wasting gas to save gas when they go out of their way? Bankrate.com has a calculator that determines how much money driving off-route to a cheaper station saves. Motorists can plug in their mpg, gas tank size, distance to travel to a cheaper station and its price and the distance to the closer station and its price.

When Matelis keyed in his Intrepid's 24 mpg and 17-gallon tank, and the $1.70 he paid last week at the station 3.5 miles away instead of the $1.79 at the station 1.7 miles away, he found he saved $1.40 per fill-up. Says Matelis: "That's worth it."

© 2004 The Washington Post Company