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Jennifer Robison

Las Vegas Economy: Fuel Costs Won't Back Down

12 July 2005

The cost of regular, unleaded gasoline hit $2.44 a gallon in Las Vegas on Monday, AAA Nevada spokesman Michael Geeser said.

That price is up significantly from $2.08 on the same day a year ago, but is down from the local record of $2.53 a gallon, which was set on April 14. Advertisement

Statewide, the average price was $2.48 on Monday, compared with $2.11 a year ago and a record high of $2.56 on April 15.

Geeser said Hurricane Dennis and last week's terrorist attacks on London conspired to "drive up fears of investors on the price of crude oil, which twice last week went over the $60 (per barrel) mark. That in turn has had an effect on the prices we pay at the pump," because crude oil is a key component of gasoline.

Nationally, gasoline prices have hit a record high of $2.33 a gallon, pushed up by the climbing cost of oil and strong demand in the midst of the summer vacation season, an industry analyst said Sunday.

The $2.33-a-gallon mark -- a national average for all grades of gasoline -- narrowly surpassed the prior record of $2.32 set in April, said Trilby Lundberg, who publishes the semimonthly Lundberg Survey of 7,000 gasoline stations around the country. The figures are not adjusted for inflation.

The record national price, based on figures compiled Friday, was up nearly a dime from the survey two weeks earlier.

Jeff Marshall, owner of the Trop Stop Gas Station and Car Wash at 4885 W. Tropicana Ave., said industry reports that he reads also cite growing demand for oil in developing countries as a key driver of prices for oil and gasoline.

"Third World countries' economies are improving and becoming more oil-dependent," Marshall said. "Their industrial sectors are improving and more people are driving cars and using oil for various purposes. The demand for refined fuel is increasing worldwide, but the number of refineries is not increasing. That's also occurring in the United States -- we're using more and more refined fuel, but the difficulties in opening a new refinery are so immense that it's not happening."

On Monday, a gallon of regular unleaded was $2.39 at Trop Stop, up from $2.26 two weeks ago. Marshall, who said his station has a profit margin of 1 percent to 2 percent a year, said he sets his prices based on what wholesalers charge him.

"None of the dealers are very profitable," he said. "It is not the individual retail sites who are making money. It is either (the Organization of Petroleum Exporting Countries) or the major oil refiners who are making the money."

Marshall said he sees indications that his customers are hurting from rising gasoline prices.

"The people we see are struggling," he said. "When you've got an individual who lays out a $20 bill and says, 'Give me $3.50 of unleaded,' you know they need the rest to make sure they have food on the table, or maybe to buy some pharmaceuticals. For many, life is not that easy."

So far, customers haven't taken their ire out on Marshall or his workers, and he said sales volume at his gasoline station is stable.

"People have to go to work. They have to take their kids to school and soccer practice," he said. "People understand, but I think most people are skeptical about why prices are as high as they are. Most people realize they don't need to be that high. We see OPEC members rolling in dough. They're cutting a fat hog on the backs of the working class."

Though the dynamics behind gasoline prices are complicated, Marshall suggested some possible solutions.

"More refineries wouldn't hurt," he said. "What would really help would be if fuel requirements could be standardized for each local market. Right now, Las Vegas has a certain blend of fuel that can only be used here. When refineries in California need to make Las Vegas fuel, they have to stop, shut down the refinery, clean the place out and start again with our refined fuel. There are different fuel (blends) for Arizona and even for Reno. That places a strain on the availability of supply to us.

"I understand there are air-quality issues and environmental concerns involved, and that's why they change it per area, but it just seems like they've made it more complicated than it needs to be."

In the near term, analysts predict gasoline prices could continue to rise -- perhaps to painful levels.

"Based on where we are now and the way the market has been behaving, touching on $3 a gallon is really not out of the question," said Denton Cinquegrana, markets editor for the Oil Price Information Survey in New Jersey. "Nevada in particular is kind of an island at the mercy of the (Cal-Nev) pipeline bringing gas to you. If you had some problem where the pipeline was down for a significant period of time, gas is priced now where it could go bonkers."

Houston-based Kinder Morgan's Cal-Nev pipeline, which supplies most of the gasoline and jet fuel needed in Las Vegas, shut down last October for about three days for safety checks after rainfall exposed it. The closure did not affect local gasoline prices.

Other analysts said that even if the cost of crude stabilizes and no major supply disruptions emerge, gasoline prices could still increase.

"It's quite possible, if crude oil prices remain around $60 a barrel, that retail gasoline prices might rise a bit more because of strong demand," Lundberg said.

According to the Lundberg Survey, self-serve regular averaged $2.31 a gallon nationwide, up from $2.21 on June 24. Midgrade averaged $2.40, with premium-grade hitting $2.50.

Among the stations included in the survey, the highest price for unleaded regular was in San Diego at $2.55 a gallon. The best deal was in Charleston, S.C., at $2.09 a gallon.

The $2.33 mark remained well below the inflation-adjusted high -- $3.03 a gallon, in March 1981.

Oil prices settled just below $60 a barrel on Friday. The Group of Eight industrialized nations, which met last week in Scotland, said that surging oil prices posed a risk for the world economy.

Lundberg noted that demand for gasoline was up 2.5 percent compared with last June, despite the jump in prices.

AAA Nevada's Geeser said vacationers planning summer travel are unlikely to alter their itineraries to account for bigger fuel expenses.

He quoted a recent study by the Travel Industry Association of America that calculated the increase in fuel expenses for tourists traveling by car. It showed that a 500-mile trip would cost just $10 more this summer than it did last summer.

"For most people, $10 isn't going to prevent you from taking that trip," he said. "(Prices) really have no effect on our travel plans. Despite the increases we've seen over the last couple of years, the percentage of people traveling, especially in Nevada, has increased. So it's unknown how much gas prices have to go up to prevent people from traveling. We just haven't seen it yet."

The Associated Press contributed to this report.