Tuesday, March 11, 2014
Gasoline prices are rising again in Maine, after falling to a nearly three-year low earlier this month. On average, they’re up about 6 cents over the past week.
In this November 20, 2013 photo, the Cumberland Farms convenience store on Route 1 in Yarmouth. Gas prices are begin to go up again after reaching a three-year low, just in time for Thanksgiving travel.
John Ewing/Staff Photographer
In this November 26, 2013 photo, the Cumberland Farms convenience store on Roure 1 in Yarmouth. Gas prices rose an average of 6 cents in a week across the state of Maine. At this station, the price rose 10 cents, but was still below the $3.45 per gallon state average.
Prices are changing quickly, too. At some stations that were in price wars last week, prices have shot up 13 cents a gallon in recent days.
For instance: The average price for regular gas Tuesday was about $3.45 statewide, and a penny less in Greater Portland, according to AAA’s daily survey. A week ago, a Citgo/Big Apple and a Cumberland Farms on Route 1 in Yarmouth were duking it out at $3.28 a gallon, among the lowest prices in Maine. By Tuesday morning, the Citgo was at $3.43 and the Cumberland Farms was at $3.38.
A sudden run-up can be costly for drivers at one of the busiest travel times of the year.
Delays in seasonal refinery maintenance are contributing to the abrupt rise, said Michael Green, a spokesman for AAA. He expects the increase to be temporary.
Even if the market eases in the next few weeks, Maine’s gas prices are no bargain, according to data developed for the Portland Press Herald by GasBuddy.com, an online service that reports gas prices in the United States and Canada.
• Maine has the eighth-highest gas prices in the country this week, due largely to state taxes and limited options for supply.
•Limited supply options reduce price competition, with the current differential between the most expensive and cheapest stations in Maine at 35 cents a gallon. Nationally, the spread is 97 cents.
• Although Portland Harbor is home to major gasoline terminals, average retail prices this year in the state’s largest metro area have been higher than in Lewiston-Auburn or Bangor. That gap has closed in recent days as wholesale prices have risen.
• The least expensive gas in Maine is typically in rural and suburban communities where competition creates price wars. That’s the reverse of national trends.
Gas prices are of keen interest in rural states such as Maine, where some people drive long distances to work. The average driver puts 13,000 miles a year on a vehicle, which gets 23 miles per gallon, according to national figures. That works out to 565 gallons a year. So a 23-cent difference in gas – which averaged $3.38 a gallon earlier this month and $3.61 last November – adds up to $130 for the typical driver.
In a few Midwest states, average prices this month fell below $3. That won’t happen in Maine, analysts say.
First, the cost of a gallon of gas in Maine includes about 50 cents in fees and taxes. The state’s share of that is 31.5 cents, according to the Tax Foundation. Neighboring New Hampshire has a total tax of 38 cents, with 19.6 cents levied by the state. That’s a key reason New Hampshire has New England’s lowest average gas prices.
Second, Maine lacks diversity in its supply. Most of the fuel arrives by ship and barge from refineries along the East Coast. About half comes from the Irving Oil refinery in Saint John, New Brunswick. Markets change, but much of the crude oil used to make Maine’s gas comes from overseas, and has been more costly than domestic and Canadian crude.
That contributes to the narrow price spread in the state, experts say. “There’s not a lot of infrastructure in Maine and all your gas is coming from a couple of areas,” said Patrick DeHaan, a senior petroleum analyst with GasBuddy.com.
PRICES OFTEN VARY BY REGION
Some parts of Maine have benefited more from this year’s falling prices than others. GasBuddy.com’s figures show that average prices in mid-November were down more than 17 cents in Oxford, Sagadahoc, Lincoln and Waldo counties. Prices fell only 9 to 11 cents in Cumberland County.
Similar trends were recorded for the three metro areas. Bangor’s average price fell to $3.38 early last week, a 17-cent drop from Jan. 1. Lewiston-Auburn was at $3.34, a 16-cent drop. Portland stood at $3.40, down a dime. On Tuesday, average prices in the three major markets had climbed to about the same level, $3.43 to $3.45 a gallon.
Drivers reporting for GasBuddy.com have been finding statewide low averages in Norway and neighboring South Paris. That may seem unusual, because of the added cost of trucking gas to rural areas.
“Localized prices are due to local competition,” said Jamie Py, executive director of the Maine Energy Marketers Association.
A C.N. Brown-operated Citgo station in South Paris and a Cumberland Farms in Norway have been in a price war. Both were selling regular gas for $3.28 early last week, according to drivers reporting on GasBuddy.com, and edged up to $3.30 later in the week. By Tuesday, both were at $3.41.
Neither company talks publicly about price competition. A woman who identified herself as the manager of the Cumberland Farms in Norway said she isn’t allowed to speak to the media, and the corporate office declined comment. C.N. Brown executives didn’t return repeated calls.
PROFIT MARGINS THIN – OR NONE
Gasoline demand in Maine is modest, when compared nationally. A typical station pumps less than 750,000 gallons a year, according to the Maine Energy Marketers Association, a third of what a big-city outlet might do.
That’s why most major oil companies have moved on, even if some of their brand signs remain, through operating agreements and other partnerships. Behind the signs are regional players such as South Paris-based C.N. Brown and Cumberland Farms/Gulf Oil of Framingham, Mass., and Canadian ventures such as Irving Oil and Circle K’s global, convenience-store parent, Couche-Tard.
The owners strive for a profit margin, after expenses, of at least a few cents on every gallon. To get that, they constantly check the wholesale price of gas. They tack on taxes, plus what it costs to truck fuel from the terminal to the pump. Then they factor in business expenses, everything from rent and salaries to credit card fees.
The cost of real estate and labor are higher in Greater Portland, experts point out, and the economy is stronger than in most of Maine. Those factors can push up prices, they say.
But gas wars do break out in Greater Portland. A battle for customers has played out in Yarmouth. Here’s how the math works out:
The wholesale price of gas in Portland Harbor early last week was $2.77 a gallon. Add 50 cents for taxes and fees. Then add a few cents to truck it to Yarmouth. That’s $3.30 a gallon.
But that price doesn’t include business expenses, which range from 10 to 15 cents a gallon in Maine. So anyone selling a gallon in Yarmouth last week for less than $3.40 was probably losing money.
Two convenience stores on Route 1 had been doing that, advertising $3.28 to attract customers. One is a decade-old C.N. Brown, Big Apple/Citgo store. Across the road is a new Cumberland Farms.
The Cumberland Farms was busy during the morning commute last week.
Jennifer Gardner drives from Cumberland to Bath and had been getting gas in Topsham. But she found the Cumberland Farms to be less expensive so she was stopping in Yarmouth once a week to fill up.
Was it worth coming in to save a few cents?
“For sure,” she said, pointing to her Toyota Highlander SUV, which averages about 22 miles per gallon.
Cyndy Thayer commutes from Richmond to Portland, 40 miles. She was filling her Subaru Impreza and using a Cumberland Farms “Smart Pay” card that saves her 10 cents a gallon. She said she previously stopped at the Big Apple, but recently switched to the Cumberland Farms.
C.N. Brown held the Big Apple price at $3.28 until early last week, when it went up overnight to $3.36. On Friday, Cumberland Farms also raised its price, to $3.37. By Tuesday morning, the Big Apple was up to $3.43 and Cumberland Farms had moved to $3.38.
PRICES QUICK TO RISE, SLOW TO FALL
A jump in the retail price often follows a spike in supply costs, said Green at AAA. But don’t expect prices to ease as quickly as they have risen.
“There’s a term in the business: ‘Gas prices tend to rise like a rocket and fall like a feather,’ ” he said.
When owners see wholesale prices rising, Green said, they know the next truckload will cost them more than what’s in the ground. So they try to get ahead of the increase. When wholesale prices drop, station owners lower retail prices gradually, to make more money on the downside.
That calculus is magnified during a price war. The convenience store model has turned gas into a loss leader at some outlets, Green said, a way to draw people to buy products with higher profit margins, such as coffee, smokes and sandwiches.
Looking ahead, analysts have mixed views on price trends. The Lundburg Survey, a widely quoted petroleum research company, is speculating that retail prices may rise another nickel or dime, even if crude oil prices remain low.
AAA, which attributes the current rise partly to stalled refinery maintenance, expects the increase to be short-lived.
GasBuddy.com says the breakthrough talks on Iran’s nuclear program may bring more Iranian oil onto the market, pushing prices lower over time.
“If Iran and the West can ultimately come back to the table and agree on a longer-term resolution, there could be a lasting effect on oil prices,” DeHaan wrote in his blog Monday.
Tux Turkel can be contacted at 791-6462 or at: