Cheaper oil slower to show up at pump

By Tom Doggett and David Sheppard - Analysis

WASHINGTON/LONDON (Reuters) - Gasoline retailers in the United States and Europe are not passing on to consumers all their savings from the drop in crude oil prices as they move to recover some of their losses from earlier in the year when oil costs were soaring.

Since hitting a peak above $147 a barrel in July, the price of crude has dropped about $33, or 79 cents a U.S. gallon. U.S. gasoline prices over the same period have declined only 37 cents from the record of $4.11 a gallon to $3.74 this week.

There is a normal lag time of about two weeks before cheaper crude is reflected at the pump and up to eight weeks before the full savings is passed on to consumers.

But industry analysts said gasoline retailers are struggling and will be looking to make up some lost money.

"There's a whole lot more pressure on retailers to hold back price increases and there's less pressure when prices are coming down. So they're able to expand margins," said Jeff Lenard, spokesman for the National Association of Convenience Stores.

Lenard said retailers normally need to mark up the price of gasoline by about 13 or 14 cents a gallon, which covers their selling expenses and leaves them a profit of about 1.5 cents.

During the first half of this year, when oil prices were rising, margins averaged less than 10 cents a gallon. Now they have increased to 21 cents a gallon.

"The first half of the year was just abysmal," said Lenard. "The reality is if the retailer didn't start expanding margins right now, you're not going to see that station open much longer."

"Many gasoline stations are now trying to recapture some of the lost margins as the cost of gasoline comes down," said Geoff Sundstrom, spokesman for the AAA travel group.

Doug MacIntyre, senior analyst at the U.S. Energy Information Administration, said the cheaper crude should push gasoline prices lower. "We still have some of that to get passed through. We still have certainly more than a dime to go, probably more than that."

Still, MacIntyre said consumers should not expect to see the full 79-cent drop in the price of a gallon of crude to show up at the pump because retailers struggled when consumer demand was dropping and crude oil was rising.

U.S. gasoline demand this year is expected to decline for the first time since 1991, he said.

UK, EU WOES

In the United Kingdom, consumers have seen gasoline prices decline faster than their American counterparts. Pump prices are now down by 43 cents a U.S. gallon from a peak of $8.56 back in July.

A supermarket price war has helped lower gasoline costs, with major British retailers cutting prices and offering discount vouchers for customers who shop in their stores.  Continued...