NEW YORK -- Major oil companies and refiners, under attack for their soaring profits, are restraining prices at the pump, according to a Wall Street Journal report. The result, said the report, is that gasoline can be cheaper at branded stations operated by companies such as ExxonMobil or Valero than it is at independent stations. In essence, it said, these giants are using robust refining margins to challenge their competition.
"We've made a decision to lag [behind] the market," Mary Rose Brown, a spokesperson for San Antonio-based Valero, told the [image-nocss] newspaper. ExxonMobil said retail prices are determined by a number of factors, including retail competition.
The move is both helping big oil companies deflect political flak amid record profits and putting pressure on their competition, especially big-box retailers and economy gasoline chains, the Journal said. Consumers are unlikely to feel too grateful, because gasoline prices gained after hurricanes Katrina and Rita, which shut down about 20% of U.S. refining capacity.
Refiners can well afford to subsidize their retail operations, the report said. Valero reported net income of $1.38 billion for the six months ended June 30, 2005, an increase of nearly 60% from the six months ended June 30, 2004. Economy chains and big-box retailers have no such fallback.
At the same time, industry officials said, oil companies are looking to temper rising political hostility amid gasoline prices that are up nearly 90 cents a gallon from last year, according to the Energy Information Administration (EIA). This week, Democratic senators called for an investigation into alleged price gouging. "The majors are practicing de facto price regulation," Tom Kloza, chief oil analyst for the Oil Price Information Service (OPIS), Wall, N.J., told the paper.
Nonetheless, pump prices are rising. On Friday, AAA reported that the average national price for regular unleaded gasoline was about $2.84 a gallon, up almost 25 cents from a month ago.
But Kloza said the move by large oil companies to take a hit at the retail level is resulting in gasoline prices "drifting up instead of spiking." In such a climate, he says, economy chains and big-box retailers have three choices: sell well above the average retail price, sell at a loss or shut off their pumps temporarily.
The number of grocers and big-box discounters, which entered the gasoline business during the late 1990s, is increasing at about 20% a year, according to Energy Analysts International, a consulting firm in Westminster, Colo. Economy chains such as Love's and QuikTrip also have experienced enormous growth, the report said. Jenny Love Meyer, a spokeswoman for Love's, which has about 160 retail gasoline outlets, told the paper that the company so far had declined to pass all costs on to consumers.
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