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Pump prices drain wallets

By Staff | Apr 19, 2008

Enron is no more, but the Enron Loophole remains.

And the Petroleum Marketers and Convenience Stores of Iowa would like to close that loophole, saying that it alone is responsible for most of the recent spike upward in oil and fuel prices.

According to P.M.C.I., and many similar groups throughout the country, Wall Street speculators are driving up the price of oil. And they’re benefitting through a loophole that allows electronic exchanges to operate without federal oversight or regulation.

The result is a “dark market” that some believe is responsible for as much as 75 percent of trading which they say encourages excessive speculation.

According to a June 2006 U.S. Senate Permanent Subcommittee on Investigations, $20-$25 of the then $70 a barrel price for crude was due to speculation, meaning that the fundamental price should have then been $55 a barrel.

While similar criticism has been directed toward grain commodity speculators, federal regulations provide a “window” that prevents such under-the-table trading from occurring on the Chicago Mercantile and Board of Trade. However, that same window does not exist for oil and fuel traders.

While April consumer spending is up, something that should normally be a good sign for the economy, most of that spending increase was based on higher fuel prices. And, while some argue that ethanol production is increasing the price of food, a more significant cause for higher fuel prices could possibly be tied to higher prices on the grocer’s shelf. A case is point is diesel breaking the $4-a-gallon mark and headed for $5 by early summer, by some accounts.

With regular unleaded running $3.39 and diesel at $4.14, Rick Houseman of Houseman Oil Co./Riverside Sinclair acknowledges an impact on drivers, particularly truckers.

“That’s the one that’s really getting hit hard,” Houseman said.

Houseman said he talked to one farmer who trucks on the side and who sold some of his trucks off. Another independent trucker told Houseman he sold his tractor and trailer.

Overall, truck traffic throughout the Midwest appears to be down. While loads leaving the Midwest generally get a fuel surcharge — a payment differential to make up for the difference for higher-priced fuel — that’s not the case of backhauls when shippers might figure they have drivers “over a barrel”. And, while consumers might cut down the miles they drive and the number of trips they make, that’s not an option for truckers.

As a point of comparison, Houseman said over the last 35 years, gas demand has risen 55 percent. That compares to 285 percent for diesel. Unfortunately, only about 25-30 percent of each barrel of crude can be turned to diesel while the rest goes for gas, accounting for the much-higher price for diesel than for gas, Houseman said.

Unfortunately, says Houseman, service stations and convenience stores are as much at the mercy of higher-priced petroleum products than anyone.

“We’re on the bottom end of the totem pole,” Houseman said.

Dave Kuker of Dave Kuker Trucking of Spirit Lake said higher fuel prices “definitely” are having an impact on the cost of doing business, particularly on the East Coast and Pennsylvania. On the West Coast, truckstops once filled up by 4 p.m. are now relatively empty.

While fuel appears to be headed for $5 a gallon by June 1, Kuker said some brokers are still trying to pay $1 to $1.25 for backhauls — about the same rate paid 30 years ago. About 50 percent of customers will pay a fuel surcharge, Kuker said.

One answer Kuker has found to help stay in business is hauling partial loads. It might mean more drops and a longer turnaround time, but it makes a difference in a truck paying for itself — or not. Kuker tries to get $2.50 to $3 a mile whenever possible.

In addition to his own fleet, Kuker has 30 owner-operators hauling dry freight from Stylecraft and Polaris.

One thing that really hurts is slow-pay customers, says Kuker. Some take as long as 90 days to pay.

Another thing that hurts is drivers who take the $1 rates without batting an eye. That’s when it costs $1.30 to $1.40 a mile to keep a truck and driver on the road.

Kuker had a fairly strong opinion about “bottom-feeders” who haul for the lowest rates.

“They’re trying to take over everything but I think they’re just going to put themselves out of business.”

As one solution, Kuker would like to see legislation mandating rates of at least $1.50 a mile.