Relief on the way at pumps

ATLANTA — Even as Hurricane Wilma makes its way through the Gulf of Mexico, metro Atlanta drivers should continue to see gasoline prices drift downward.

Barring any significant disruption in the energy markets, experts say regular gasoline will be selling for less than $2.50 a gallon within weeks.

"There is room to come down," said Geoff Sundstrom, spokesman for AAA. "We'd like to see them move with the same speed down as they moved up."

When it comes to gas prices, gravity comes in several forms:

• Oil prices on Friday slipped below $60 a barrel for the first time since late July. The price did rebound slightly to close at $60.63, but the trend has been down.

• Gasoline and oil production in the Gulf of Mexico – expected to be spared by Hurricane Wilma – has slowly climbed back from the shutdowns following Hurricane Katrina in late August and Hurricane Rita nearly a month later.

• Demand for gasoline has fallen. Fewer miles are driven after summer ends, and motorists have cut back in the face of higher prices.

• With demand down and production up, inventories are building – which convinces traders that prices will keep slipping.

• Imports of gasoline from Europe are at record levels.

Even if gas prices drop below $2.50 a gallon, as AAA believes will happen, that is still dramatically more costly than gasoline at virtually any time since the early 1980s. But it will seem like a bargain after the spikes caused by Katrina and Rita.

Both storms temporarily shut down virtually all oil and refinery production on the Gulf Coast. Almost two-thirds of oil production remains offline, according to the government's Minerals Management Service. For days, the storms also knocked out key pipelines that carry fuel to metro Atlanta.

The price of wholesale gasoline peaked at more than $3 a gallon after Hurricane Rita hit, according to the Energy Information Administration. Within days, Atlanta drivers, too, were paying average prices of $3.

But when wholesale prices fell, prices in metro Atlanta stations ticked down more slowly. By this week, wholesale prices had plunged about $1.30 a gallon since their $3 high, according to the EIA, while pump prices had dipped 20 cents during the same period.

The gap between wholesale and retail prices remains near its high, said economist Aaron Smith of Economy.com. The last time wholesale prices were at this level, drivers were paying an average of about $2.20 a gallon, he said.

Why the gap? Because the post-hurricane spikes in gas prices did not always translate to profits for retailers, said Jacob Bournazian, oil market analyst for EIA.

Perhaps they were sensitive to a repeat of the gouging charge they heard after Katrina, but many retailers did not raise prices enough to maintain their usual profit margins when wholesales prices peaked. Moreover, supplies were so tight that some stations lost profits when they ran out of fuel and lost convenience store walk-in customers.

"They got burnt – big time," Bournazian said. "So they think, 'When wholesale prices go down, I am not going to lower mine. I've got to make some money back.' "

Paul Tomaszewski, co-owner of Atlanta-based Pacer Fuel, knows both ends of the equation: Pacer is both a wholesaler as well as the operator of 14 service stations.

"Some people are trying to make a margin," Tomaszewski said. "Some people may have been in financial straits and did not drop as quickly in their price, so they could recover profits. But competition will make this thing come back down, and it is coming down."

In the weeks after the hurricanes, the normal market had been distorted. Fearing shortages, drivers were filling up more often. Shortages were not equally shared, and independent chains sometimes were last to get gasoline.

Those independent chains often sell gas at the lowest price. So if they weren't lowering prices, neither did the "brand name" stations that generally price themselves several cents higher.

But prices have come down. A QuikTrip at Briarcliff and Druid Hills roads, for example, was briefly out of gas in the first week of October, then was selling regular at $3.09 a gallon. By Friday evening, it had dipped to $2.59 a gallon.

That's in line with local prices, which Friday averaged $2.68 a gallon – down 19 cents in a week, according to AtlantaGasPrices.com.

Those price cuts seem to signal a shift back toward a smaller profit margin, which will mean lower prices across the board, Bournazian said. "They ain't going to fall 50 cents in one week. But you will see prices falling."

That drop can't come soon enough for Jane Howard.

Commuting from her home in Athens to Alpharetta, she fills the tank of her Volkswagen Jetta every two days. "I know the people here well," she said Wednesday, pumping $34.01 of gasoline at a QuikTrip on Haynes Bridge Road.

Economists have been debating the effect of high energy costs. It is not just gasoline; heating oil costs, too, will be dramatically higher this winter than last.

How will much will consumers change their spending to cope?

Howard is the manager of a store at North Point Mall, and she likes her job. But something has to change – and it will, she said: "I am going to move as close to my job as I can possibly get."

Michael Kanell writes for The Atlanta Journal-Constitution. E-mail: mkanell@ajc.com