A new nickel-a-gallon federal tax on gasoline and diesel fuel goes into effect Saturday, but it's unclear how much of that increase will find its way to the corner gasoline station.
On one hand, service station operators say they can't afford to swallow any of the tax and must pass the 5-cent hike onto consumers. On the other hand, service station operators may not want to risk losing any more customers, especially since demand for gasoline has already fallen dramatically in the face of high prices resulting from the Aug. 2 Iraqi invasion of Kuwait, analysts note.
"You're damned if you do and damned if you don't," said David Carney, who operates Hillside Chevron in Torrance.
The 5-cent tax was approved by Congress in October as part of the budget reconciliation act, with half of the anticipated $5 billion in new revenues going to reduce the federal budget deficit and half to finance transportation projects. It boosts total federal gasoline taxes to 14 cents a gallon.
Scott Jones, an industry analyst and president of AUS Consultants Inc. in Philadelphia, said his firm's research indicates most retailers will hike prices the full nickel at first, but then back off in the next two or three weeks, with dealers ultimately eating two cents of the increase.
"Picture four service stations at an intersection," Jones said. "Given the current market situation, with sellers of gasoline vying for decreasing demand, it will be too enticing for one of those four stations to raise their prices only four cents a gallon while the other three raise theirs a whole nickel. Then it starts."
There is another scenario: refiners or oil companies could decide to drop the wholesale prices of gasoline sold to dealers to offset the tax hike.
"There's a possibility that retailers will appeal to branded refiners and say, 'Look, the competition is forcing us to lower our prices; you guys have to give us some help,' " Jones said. But, he added, "Normally this sort of thing falls full force on the retailer."
None of seven major oil company spokesmen interviewed Thursday would comment on future price changes, saying only that the companies would remain competitive.
Chevron Corp., however, recently dropped posted wholesale prices of gasoline 4 cents a gallon in California. But there was no net effect on wholesale prices, because the change simply reflected a discount already being offered to dealers.
