At least 50 gas stations in New Jersey and Pennsylvania hiked their prices to over $8.00 per gallon, in an attempt to put across their own statement with regard to what they deem as unfair pricing practices by Lukoil North America, which leaves them disadvantaged in the competitive market.
New Jersey Gasoline, Convenience, Automotive Association’s, Sal Risalvato, was quoted in a statement saying that the protest was aimed at both the consumers and Lukoil company, as they sought to express the challenges Lukoil dealers are facing, as well as convincing the company to address vendor grievances, notes Huffington Post.
In responce to the protests, Lukoil gas company issued a statement, which seemed to overlook the expressions of the Automotive Association, in regard to its pricing practices, saying, “they comply with state law”, the Russian based company also accused the association of encouraging, “public misstatements and ill-conceived actions,” noted the report.
Meanwhile, Risalvato had held a conference during which, he slapped a price label of $8.99 per gallon, and said, “Lukoil forces franchisees to pay higher prices for their fuel than competitors. It is not uncommon for Lukoil dealers to see a competitor selling gas to the public for considerably less than what they’re paying Lukoil for their latest delivery.”
The Russian oil driller opened shop in the U.S back in 2003, and has since gone on to open more than 500 service station in the North-East and Mid-Atlantic region.
The gas Stations Association expressed its challenges to its customers, by issuing them with fliers asking them to contact Lukoil in a bid to address the issue. Risalvato further said, “they essentially sell the very same gasoline to stations in close proximity of each other at different prices in order to game the market and compete with other gasoline brands.”
He added that in doing so, the resultant mathematical impact could be about 25 cents, or more than 3% difference between the two vendors, using the base of $8.00 per gallon, which when scaled to volume sales, can result in enormous disadvantage against competitors.
However, Lukoil, in its statement, addressed the issue of differences in pricing, labelling it as Zone Pricing, which it said it exercises based on the competition in local pricing. “It’s a commercially reasonable practice used by gasoline marketers for many years and fully compliant with state law,” the company said. However, Risalvato was of the opinion that Lukoil prices were way beyond its statement, saying that the company’s gas prices are always above market prices.
Lukoil Gas company faces competition from the U.S.’ largest gas mining company, Exxon Mobil Corporation (NYSE:XOM), as well as Chesapeake Energy Corporation (NYSE:CHK), both of which were covered in one one of our recent posts, exhibiting the rising costs of mining the commodity, from shale deposits.
Locally, Lukoil is Russia’s second largest oil and gas company, after Gazprom OAO (MCX:GAZP), which has also been covered widely, in regard to its Arctic exploits and the rising local challenges, which include pressure from slowing Russian economy, increasing costs of production, and falling oil prices.
On the global scale, Lukoil also faces a stiff competition from the likes of the U.K.’s BP PLC (NYSE:BP) (LON:BP) (LON:BP.A), which also recently experienced protests of its own kind after the spill, and Royal Dutch Shell plc (NYSE:RDS.A) (NYSE:RDS.B).
One important point to note though, is high gas prices do not necessarily benefit the gas companies, but rather the oil producers.