Island dealers say pace of gasoline price freefall is likely to slow
By Jack Shea
Published: December 11, 2008
This week the price of a gallon of regular gasoline dropped below $2.50 at many Island gas stations. Plunging Island gasoline prices have been welcome, but the run may be over soon, according to an Island gasoline retailer and an Island distributor.
Asked whether prices that are at their lowest level since 2004 will continue to drop, Michael Rotondo, who operates Airport Service Station off Barnes road in the Airport Business Park said last week, "Not much, maybe another dime or two."
This week, Island gas stations were seeing continuous price reductions. On Wednesday, Airport Service Station had dropped the price for regular unleaded from $2.59 a gallon to $2.49.
Menemsha Texaco's regular gas price was $2.49 on Wednesday morning. Marshall Carroll, station manager, said he was expecting a delivery that morning that would probably result in another price reduction.
At Depot Corner Mobil in Edgartown, regular price was $2.55 a gallon on Wednesday morning. At the Citgo in Vineyard Haven the price was $2.59.
On Tuesday, Up-Island Automotive in West Tisbury was selling the same blend for $2.35 per gallon. On Wednesday the price dropped to $2.24.
"We've made a commitment to Islanders to keep gas as affordable as we can," said Joan Jenkinson, who noted her family has operated the station for 38 years. "And we've worked hard to keep our fixed costs down."
By Island standards $2.24 a gallon is certainly a bargain but off-Island motorists are finding even lower prices.
Gas prices fell another ten cents a gallon in Massachusetts last week, dropping to the lowest levels seen since April 2004, according to AAA. According to a survey of prices taken on Dec. 8, the average for a gallon of self-serve regular unleaded was $1.74 per gallon. The AAA survey found a low price of $1.55 per gallon and a high last week of $1.99 per gallon.
Islanders are unlikely to see prices drop further. Asked if gas prices would drop to $2.00 a gallon, Mr. Rotondo said, "That's a push; probably not. It's really a function of the international economy and the cost of doing business on Martha's Vineyard."
The difference between the price of gas on Martha's Vineyard compared with the mainland has been a topic of interest -and suspicion - for decades among Islanders. And that gap appears to be widening.
A survey of gasoline prices published in The Martha's Vineyard Times on November 1, 1990 reported that Menemsha Texaco in Chilmark and Up Island Auto had the lowest prices, $1.72 per gallon. The highest price was at Tisbury Texaco, now Tisbury Shell, at $1.79. Gas at Falmouth Citgo was $1.49 per gallon, a difference of 26 cents or 17.4 percent.
This week, the lowest price difference between the mainland and Martha's Vineyard was 50 cents or about 28 per cent. The average gap was around 75 cents or more than 43 per cent higher than the average mainland price.
Why is the gap widening? The answers include several cost factors, most of which relate to living on an island, according to Mr. Rotondo and Ralph Packer, president of R.M. Packer Co., which distributes gasoline to many Island retailers.
One element is timing. According to government accountability office (GAO) statistics, the average U.S. gas station has about 20 days inventory. Martha's Vineyard has at least 30 days inventory.
Retail gasoline prices are tied to the wholesale price paid. In a falling price market, that means Island stations are selling older, more expensive gas, ten days longer than on the mainland.
Airport Mobil has 37,000 gallons in storage inventory. Mr. Packer, who is the only Vineyard-based supplier of wholesale gasoline and fuel oil, and operator of Martha's Vineyard's only marine fuel terminal, has 650,000 gallons of storage at his Vineyard Haven facility, which has eight tanks
"And the fact of life on Martha's Vineyard is that things cost 25 per cent more than on the mainland, whether it's construction, food, paper towels, or gas," Mr. Rotondo said Tuesday from Falmouth where he was holiday shopping. "I'm over here like everyone else, trying to save money at Sam's Club. I'm charging 12 or 15 cents more a gallon than the mainland and while people may not like to hear that, that's because it costs me 12 or 15 cents more to live here than on the mainland."
Mr. Rotondo said he considered buying unbranded gasoline, but rejected it. "I could charge seven or eight cents less, but I wouldn't be able to handle 24 credit cards, the extras the Mobil brand offer consumers that my customers want," he said. The GAO study, completed in 2004, found marketing and distribution accounts for about 12 percent of the cost of a gallon of gas.
Crude oil is 48 percent of the price, taxes are 23 percent and refining just 17 percent of the cost of a gallon of gas, the GAO said.
Acknowledging that customers question gas prices, Mr. Rotondo said that while his profit margins have risen about one half of one percent a year over the past 11 years, his freight charges have more than doubled in the period, from 13 cents a gallon to 27 cents per gallon.
"I get my gas from Providence," Mr. Rotondo said. "A truck is loaded the night before and the driver leaves at 4 am and returns from the Vineyard at 11 am. He could fill between two and three stations in that time. The distributor knows that and I pay for every minute of time and travel."
On Wednesday, Tisbury Texaco, owned by Mr. Packer, was selling a gallon of gas at $2.59. Mr. Packer sees prices flattening, then rising as a result of costs related to compliance with new and strict government standards and from the impact of the recession on state coffers.
"Taxes are a big issue," Mr. Packer said. "There is a bill before the state legislature now to increase gas taxes. The state is seeing a decrease in its five percent sales tax revenue. They are looking for new revenues."
Mr. Packer said gas prices on the Vineyard reflect additional and expensive costs of compliance on Martha's Vineyard. "For example, we have installed a system to capture gas fumes both in New Bedford (the departure point for his barges) and here on Martha's Vineyard and recycle them," he said. "It is a requirement of the Homeland Security protocols and cost us about $350,000." He noted that while $23 billion in homeland security funds were made available to distributors nationwide to offset the costs, no money was made available for Martha's Vineyard distributors.
Prognostication is a difficult process in the fuel energy business these days, both men noted. "We are living in amazing times," Mr. Packer said. "I have never seen anything like this, oil prices rising to $158 a barrel, then down to $48 a barrel."
Mr. Packer agreed that gasoline prices trail the mainland. "That's somewhat true," he said. "We have to keep a 30-day inventory on-Island."
