In sign of the times, retailers preparing for $4/gal gasoline

In sign of the times, retailers preparing for $4/gal gasoline

New York (Platts)--28Apr2006

US drivers should get ready for $4/gallon gasoline to be more pervasive
if the orders coming into one company that sells retail service station
signage is any indication.

Anticipating a rise in retail gasoline prices to $4/gallon, some oil
companies have started stocking up on the number "4" to use in price signage
at their service stations, said Guy Barnes, president of Fast-Ad in Santa Ana,
California. Specifically, they are buying a "4 point," or the larger font used
to denote 4 dollars, followed by a decimal, he said.

"The 4s have only recently begun," Barnes told Platts this week. "We're
making 3s and 4s on a regular basis." He said a mix of majors and independents
have either bought or are looking to buy the so-called 4 points.

Fast-Ad is "sending some [4 points] to the Midwest right now," said
Barnes, as well as to the South, and to the East Coast "all the way from
Florida to New Jersey."

The revelation caps off a week of retail gasoline price scrutiny by
politicians, starting with President George W. Bush on Tuesday telling
retailers he would "make sure Americans are treated fairly at the gas pump."
Retail gasoline prices have jumped recently, in part due to crude prices that
have risen north of $70/barrel. Prices are also being driven higher in some
places by a switch to ethanol-blended reformulated gasoline from MTBE blends
that has propelled ethanol prices to their highest levels ever. New York spot
market ethanol hit $2.74-2.75/gallon Thursday, according to Platts, versus
$1.20-1.23 a year ago.

The ethanol switch is also crimping supply, with the East Coast
particularly vulnerable as it blends corn-based ethanol which must be
transported from Midwest plants. Ethanol, unlike MTBE, tends to absorb water,
so many refiners are trying to move it mainly on trains or trucks. The extra
traffic has clogged US railroads, with Union Pacific announcing an "embargo"
situation in the Dallas area this week that has slowed movement of ethanol and
helped create spot RFG retail outages.

In his remarks Tuesday, Bush said he had ordered a halt of oil deliveries
to the US Strategic Petroleum Reserve to try and cool prices, a move some
critics called a token gesture since it only amounts to about 2.1 million
barrels, or some 0.3% of US monthly consumption. He also suggested the
Environmental Protection Agency waive reformulated gasoline fuel standards to
boost supply, a move many marketers say will not help much because RFG's
replacement, conventional grade gasoline, is not widely available in the
affected areas.

Still, $4/gallon gasoline is a "random occurrence" in the US at this
point, according to Angela Veitch, statistician with the Energy Information
Administration who is in charge of the agency's weekly gasoline price report.

EIA's report for the week ending April 24 showed the retail gasoline
price for regular grade in New York was $3.077/gallon, putting it among the
highest in the nation. That was the first time New York's average for both
conventional and RFG grades broke $3, according to EIA data that runs back
through 2000.

California also broke the $3/average level for the first time last week,
with its reformulated blend for regular grade at $3.068, according to EIA data
through 1995. Looking south, EIA showed a $2.953/gallon average in Florida in
its latest data.

"We're not really seeing ($4/gallon) on the East Coast," noted Veitch.

Florida retailers do not expect a widespread move to $4/gallon anytime
soon, according to Jim Smith, president of the Florida Petroleum Marketers and
Convenience Store Association. "Greed or no greed, they're not that stupid,"
he said of the oil companies, adding, "They'll trim their sails" before going
to $4.

According to Fast-Ads' Barnes, there haven't been orders for 5 points
yet.

--Beth Evans, beth_evans@platts.com

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