Brawling At The Pumps

Brooks Smith thought he had hit bottom last August. As president of Bay Oil Co., a Dickinson (Tex.) gasoline distributor that supplies 50 filling stations, he gasped when President Bush urged oil companies to freeze pump prices after Iraq invaded Kuwait. But wholesale costs kept rising. And unlike the majors, he didn't have refining or crude production operations to make up for the squeeze at the pumps.

Eventually, fuel prices fell to earth. But now, Chevron Corp. has cut its credit-card surcharge and picked a fight with Exxon Corp. His margins pinched anew, Smith wonders when normalcy will return. "The majors are at war," he says. "No one knows when it'll end."

It's a newfangled version of a good ol' gas war. Posted prices in most places aren't low: The average self-serve tab for unleaded regular is up 4~ since early March, to $1.12 a gallon, reports St. Paul-based Computer Petroleum Corp. But wholesale costs have jumped 9~ a gallon. And in such big cities as Houston and Los Angeles, some companies are playing hardball with pump prices below $1 a gallon--and a slew of come-ons for customers (table).

With the recession, gas demand fell 2% in 1990--the first drop since 1984--and another 2.1% in the first quarter. So Big Oil is reacting. After losing market share to Atlantic Richfield Co., which in 1982 cut prices by eliminating credit-card sales, Chevron last year dropped its 3% fee to process card sales in California. With the resulting lower prices, it claims to have enlisted 196,000 new card customers. In March, Chevron took the idea to Houston, Atlanta, and other cities, where it has aimed ads at such rivals as Exxon, which charges credit-card customers more.

Exxon is returning fire, slashing prices and giving $1 off for pumping eight gallons or more. "Exxon's determined to be 2~ cheaper than Chevron," says E. W. Wehman Jr., president of the Texas Oil Marketers Assn. That has set others on edge. BP America cut its card fee on the West Coast; Texaco and Amoco won't say, but some people in the business expect them to join in.

SPECIAL DEALS. While price wars eat profits, majors get help from oil production and refining. Pure retailers aren't so lucky. They claim majors are giving their own stations special deals. Smith says Texaco Inc. and Chevron charge him 67~ a gallon wholesale. Add 29~ in taxes, and he's at 96~--before overhead. Yet he has seen company stations post 94~. "My customers are all asking me if I'm gouging them," he says.

Don't look for the majors to back off just yet. But, says Gordon H. Thomson, vice-president of marketing at Exxon USA, the rein on prices should soon coax drivers back to their cars. And higher demand could halt the gas war faster than you can say Norman Schwarzkopf.

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