Posted on: Saturday, November 27, 2004

State gas prices remain high

By Sean Hao
Advertiser Staff Writer

A recent drop in crude oil prices from historic highs has yet to translate into any sizable drop in gasoline prices for Hawai'i's drivers.

The daily price for Indonesian Minas crude oil — a benchmark for oil consumed locally — has fallen 24 percent since hitting a high of $50.04 a barrel in late October, according to Bloomberg News Service. Yesterday, Minas traded for $38.10 a barrel.

Meanwhile a gallon of regular gasoline in Honolulu averaged $2.328 yesterday, which was just below a peak of $2.333 hit Nov. 16, according to the AAA travel club.

Unlike on the Mainland, where competition tends to force prices down when crude oil prices fall, Hawai'i prices react less to changes in crude oil costs.

While Mainland prices have fallen more than 8 cents to $1.945 a gallon during the last month, Honolulu's price has risen more than a penny to $2.328.

Three times in the last 21 months, local gasoline and global crude oil prices noticeably diverged. In one of those cases, Hawai'i prices remained flat while crude prices were rising. In the other two cases, local prices stayed high while crude fell.

As oil prices and the cost of gasoline fall on the Mainland, Hawai'i consumers are left to wonder whether local prices also will begin to drop. Continued high prices confound consumers, particularly those on Neighbor Islands where prices are even higher than on O'ahu.

"I have to work, so I am pretty much forced to pay the advertised price of gas," said Laurie Gima, a legal assistant in Pukalani, Maui. The average price for regular in Wailuku yesterday was $2.694 a gallon, which was just below a high of $2.699 set Nov. 20, according to AAA. "I wish that I could walk to work," said Gima, who commutes about 26 miles to Wailuku each day.

Nationally, the average price of gasoline yesterday was $1.945, which was down about 11 cents a gallon from a summer peak of $2.054, AAA reported.

Hawai'i's sticky gasoline prices are said to be due to the market's small size, geographic isolation and lack of competition. Oil industry officials say comparisons between Hawai'i and other markets aren't valid because of differences in the cost of doing business, regulations and taxes, among other things.

In addition, local prices are less likely to reflect changes in oil costs because Hawai'i's two refiners — ChevronTexaco and Tesoro — maintain larger than typical reserves to ensure there's no shortage of fuel for autos, jets and Hawai'i's electrical utilities, said Melissa Pavlicek, a spokeswoman for the Western States Petroleum Association, which represents ChevronTexaco and Shell Oil.

"In general there are other factors such as shipping," she said. "Over time you would expect the price of gasoline to follow crude oil and I think in Hawai'i it does. You just have to step back and look at it over a longer period of time."

While Hawai'i's gasoline prices and the cost of crude move differently in the short-term, a comparison over a two-year period shows close correlation. As of yesterday the cost of Minas crude oil was up 42 percent since November 2002. During the same period the price of regular on Oahu rose 37 percent.

Among the variety of other factors behind Hawai'i's relatively high gasoline prices are high costs for land and labor and the nation's highest gasoline taxes.

The state charges 16 cents a gallon for gasoline tax plus a 4.16 percent general excise tax. Each county adds its own tax. Maui County has the highest in the state at 18 cents per gallon. O'ahu charges 16.5 cents a gallon.

Other industry practices such as the export of excess gasoline also support high retail prices.

Hawai'i's historically high gasoline prices have bred distrust among some consumers along with lawmakers, who this year passed a law that caps wholesale gasoline prices starting in September.

"It's absolutely a rip-off," said David Soule, a retired manager in Pearl City, who fills his Nissan Sentra about once every two weeks at Costco in Waipi'o. "There's absolutely no reason for it," he added, referring to Hawai'i's high gasoline prices.

Soule said the state should regulate gasoline prices because of the commodity's critical role in society.

"There's very little I can do," Soule said. "I can do without cable TV. I'd rather not, but I could.

"When it comes to gasoline, that's something I actually need."

However, oil industry officials chafe at the idea of government price setting. They're supported by a somewhat controversial state-financed study that found that price caps are a bad idea.

"Where do (price caps) stop?," said Alec McBarnet, president of Maui Oil Co. "One hundred percent of people need food. Not 100 percent need gasoline."

Explaining the intricacies behind the state's high gasoline prices isn't easy, McBarnet acknowledged. Ultimately street prices are a culmination of fuel and other business costs and the level of nearby competition, he said.

"There's nothing nefarious because everyone, even the service station people are independent business men and women," McBarnet said. "Competition sets the price, but you have to account for basic costs."

According to a state study of gasoline price caps conducted last year by Irvine, Calif.-based consultant Stillwater Associates, local refiners earn a healthy profit that would not be possible in a larger, more competitive markets. At the same time high operating costs and low volume keep their profits from being unduly large.

The study calculated the industry's profits based on crude oil costs of $25 a barrel — a figure that's now 52 percent below current oil prices.

The higher prices rise the more profitable oil companies become, said Stillwater president David Hackett.

For the first nine months of 2004, Tesoro Petroleum Corp. said profits rose to $328.1 million, or $4.79 per share, versus a profit of $84 million, or $1.30 per share, during the first nine months of 2003.

ChevronTexaco Corp. earned $9.89 billion, or $4.65 per share, through the first nine months of this year, nearly doubling a prior-year profit of $5.5 billion, or $2.66 per share.

"The guys in Hawai'i are making plenty of dough, and elsewhere," Hackett said. "You can see it in their stock prices."

As of yesterday, shares of San Antonio, Texas-based Tesoro had risen 165 percent since Nov. 26, 2003. Over the same period shares of San Ramon, Calif.-based ChevronTexaco rose 54 percent.

Heading into next year there's little expectation of meaningful relief from high gasoline prices, Hackett said.

"For 2005 we think prices will be high and volatile," he said. "We don't see any change."

Reach Sean Hao at shao@honoluluadvertiser.com or 525-8093.