Will Washington Hijinks Lead to Lower Gas Prices?

Sunday, September 29, 2013, 8:15PM:  Thank you for your patience as we update the web site.  After a hike on the 19th, wholesale and retail prices have drifted lower.  Using Friday’s closing prices, we aren’t even close to a price hike, and I suspect that the hijinks in Washington will lead to lower prices across the board this week.  So, the prediction is no price hike this week (subject to change, or course). –Ed Aboufadel

Updated: September 29, 2013 — 8:08 pm

32 Comments

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  1. I hope this time it goes through!

  2. Markets down, oils up. so, apparently not. Spike tomorrow?

  3. Gas prices dropped to $3.06 a gallon this morning, here in west central ohio….

  4. Well I see Greedway started up their weather machine in the gulf so they can get the prices back up again. Just hope they wait till Monday before jacking us around again. By then I should be down south far enough to be out of their grip.

  5. independent retailer

    Cost to me is 3.27 this morning. A lot of places around are low to mid teens. Fill up soon!!!

  6. Gas is going up to $3.49 todayin Grand Rapids

  7. GREEDWAY jumping to 3.399 in sw Ohio today.

  8. Yup, prices went up .20 plus centavos this afternoon. CHINGAS!

  9. 3.45 in Indiana. From 2.96 in some cases. That’s a 50 cent increase…

    Independent Retailer, would you mind sharing the cost you paid for your LAST tank (not what it would cost to fill your tank today) and the cost you will be paying when you refill your NEXT tank? I’m just trying to get a feeling of the timing of this all.

    I.e. Last Tank: bought for 2.95 selling for 3.10 – 2.97
    Spike day – if you order today it’s 3.27 – keep price down for a day but don’t order new
    Spike + 1 day – order at 3.27, charge 3.39 or 3.49 or some such.

    Just curious.

  10. Turbo-

    Your assumption that a station selling gas for $3.10 would have paid $2.95 for it is wrong. I am also an independent retailer and our cost today (rack price, not including any freight or credit card processing) was around $3.17. and yet there were some stations in our area selling gas for $3.03. At no point in the past few weeks has our cost been below the low $3-teens. These stations were losing close to 15 cents a gallon on every gallon of gas they sold today (over 20 cents if someone uses a credit card). Why? Competition.

    Friday night our cost went up a cent a gallon and yet over the weekend the pump prices dropped 10-12cents a gallon as stations try to undercut each other. Finally, someone blinks and the price resets. Tomorrow, they’ll start it all over again until we are selling at or below cost, then it’ll reset again.

    If you bought gas today before it went up, you got it on sale and the sale just ended. Gas stations do sell gas many times at or below cost. I know that is hard to understand if you are in any other type of business. Why would anyone buy something and then resell it for less than they bought it for? Crazy, huh?

  11. I understand the concept of “undercutting the competition” and have watched this happen since the days of predictable dime Thursdays 15-20 years ago. But something does not add up… And we’ve discussed it on this site for years, and I have yet to get an answer that actually makes numerical sense. Maybe my four engineering college degrees did not instill much business sense. So, here it goes:

    1. You only see this approach happen on the handful of states affectionately known as Speedway States. If the model of selling gasoline for a loss was financially sound, why didn’t I see it outside the Speedway states? Are our retailers much smarter than the rest?

    2. Ironically, the Speedway States are the states where there is LESS competition than other states. So, I would need a huge supply of salt, not just grains, to buy the argument that competition is driving all this when all the arguments in the world tell me it’s only happening in less competitive states.

    3. Your post seems to suggest this all happens magically, on its own, without a central entity to provide price direction. If that were the case, a single retailer could bring the system down by refusing to play along. Since this is not happening to any great extent, it is safe to assume the prices are preordained at the wholesalers, ergo, the refiners… You get the drift.

    I could write many more bullet points, but it would be beyond the scope of this venue. I simply want to know what the big picture price determiners (i.e. wholesalers and refiners) get out of see-saw pricing…

  12. It doesn’t make financial sense, which is why when gas stations get to where they are at or under cost you see these huge jumps.

    You say just don’t play along. Ok, you own a gas station and have a a competing station across the street. Both of you have your price on a sign for everyone to see. The station across the street lowers their gas a penny to sell below you. If you match, you lose part of your profit-if you don’t, everyone goes to your competitor. So you match, and a couple hours later, he drops another penny. What do you do?

    In our area, it has nothing to do with Speedway. Speedway is just usually the first to go up when prices get too low for us retailers to bear. They are not the ones who keep driving the price down.

  13. Again, no disagreement, but it is not happening in every state, just the handful that are conveniently under Speedway’s thumb in terms of market share…

    You also do not see this kind of competition happening among other types of stores, even stores that sell other commodities like food. Supermarkets have loss leaders, but you don’t see Kroger and Meijer going tit-for-tat on the price of bread.

    If gasoline wholesalers and corporate owners want to hose consumers, they can do it without resorting to games. Zone pricing is a reality and has been so for many years. While you see zone pricing across the country, why is it that we Speedway states are unique in our pricing, giving Indiana the dubious honor of having the most volatile gasoline prices in the country?

    My engineering mind says that it’s primarily a way to generate more traffic. If you know the price will go up you rush to fill up even if you don’t need to. If you are low and the price is high you add just enough to get you to work until prices drop and you (surprise) have to fill up again.

  14. I think the thing that mystifies Turbo, is the same thing vexing most of us here, the near uniform 35 cent spikes that can happen -often in a 15 minute span and over literally a few thousand square miles Not just here in MI, but throughout the speedway corridor. This is a phenom I’ve not encountered in any other region, over 4 decades of driving. (It never happens in SoCal, where competition/choice is such that a dime spike makes the evening news.) It didn’t use to happen here in MI when there were just a handful of Speedway/Marathon owned stations. Further, there is the Admiral paradigm here in Mid MI, where on spike days, a handful of these stations Don’t raise prices to match the 95%of spike reactors, until literally 12:01 am of the following day. We all know that retailer margins are thin, but big picture wise, something has not added up here for years.

  15. In my next life I’d like to do a PhD in Economics to study the net effect of this pricing. Many gas affiliated folks claim there’s no pricing advantage to doing it this way rather than gradual increases or decreases. If you plot IN vs a state with similar taxes it may wash out.

    But, doing it this way has catastrophic effects on customer goodwill. I will not buy gas in a Speedway/Marathon station unless I’m outright out of gas, which happens like never. I prefer to give my business to Costco (90%) and Kroger (10%).

    My guess #1 as mentioned above is to drive traffic to stations, because with more spikes and volatile pricing comes more partial fill-ups and potential “inside” sales. But given that inside sales are not going anywhere, I am not sure there either.

    My guess #2 is that it’s a tactic that is designed to hide actual price of gasoline (along with nasty zone pricing) to the extent that nobody will notice if prices creep up (which they did, last 2-3 years even if you smooth the spikes out).

    My guess #3 is that it’s a tactic aimed at consolidating market share in an area with very consumer unfriendly legislation where nobody would care if a single company supplies 80% of anything and can do as they please…

    20 years ago I’m guessing it started as #1 when gas was a dollar a gallon, then moved to #3 as they built up market share because independents could not play along, and finally #2 once they cornered the market.

    How am I doing?

  16. Gas went from $3.06 (Last night) to $3.46 this morning (Tues). Nice to see its back in the $ 3.5 range ! NOT ! Had high hopes of breaking the $3 level, but no way !

  17. Sorry I wasn’t on the ball to predict Monday’s hike.

    This has been a great conversation about the dynamics of retail pricing and price hikes. Regarding the Speedway-dominated hikes in the Midwest, readers might find the article I linked to here to be helpful:

    http://www.thegasgame.com/2012/01/17/economists-have-caught-up-to-the-gas-game/

  18. As of this morning, there were still a few stations in the Lansing area holding out at 3.22-3.23. North of Lansing it looks like some stations are still in the low to mid 3.10’s.

  19. independent retailer

    Turbo here you go. I’ll go back to the 23rd
    Sept 23 3.40
    24 3.34
    25 3.33
    26 3.31
    27 3.35
    29 3.33
    Oct1 3.31
    2 3.26
    3 3.26
    4 3.29
    7 3.27
    8 3.28
    FYI I stayed at 3.349 through this past weekend. When Speedway reset to 3.59 I went to 3.49. I will not lose money on gas unless I make a poor buying decision.

  20. independent retailer

    Sorry. Speedway went to 3.49 I went to 3.39

  21. Awesome! Would it be the end of civilization as we know it if everyone stuck to making a profit without the spikes?

    Of course, if Speedway / MPC affiliated companies are getting gasoline for a lot less than Independends then that changes the pricing dynamics, so let’s assume they don’t. What would happen if you continue to follow the natural trend of wholesale prices rather than continue to play yo-yo? if enough retailers do this the spell can be broken, no?

  22. Great conversation…and if I wasn’t in the middle of a codiene fog from pain meds for diverticulosis…ahhh nevermind. Great job people.

  23. So if the price of wholesale gasoline has averaged around 2.63 then why the spike at all? Wholesale gasoline price plus applicable taxes gets you to what an independent retailer pays for gas correct? Just asking for my knowledge.

  24. Why the spike? Wholesale gas at $2.63 + .00875 (LUST) + .184 (Federal Tax) + 6% MI Sales Tax + .19 (MI Highway Tax) = $3.18 cost to retailers (customer uses a credit card and the 2% fee adds another 6.5 cents/gallon). Before the spike, gas in our area was down to $3.029-a loss of 15-20 cents/gallon.

    Gasoline sales are very price sensitive due to the fact that the prices are right on the street (unlike bread in the supermarket). People will drive to the other end of town to save a penny a gallon (15-20 cents on a fill-up) and burn a gallon of gas doing it (costing them over $3).

  25. That is exactly the way i figure it Jefferson. However in my area, gas was at 3.23 before the spike, still netting them around a nickle profit on a cash purchase. Wholesale gasoline didn’t change and now the spike nets them a .31 profit. As you mentioned before its the game of getting consumers to your station first. Thanks for the info though i appreciate it. Trying to understand “the game”.

  26. “Gasoline sales are very price sensitive due to the fact that the prices are right on the street (unlike bread in the supermarket). People will drive to the other end of town to save a penny a gallon (15-20 cents on a fill-up) and burn a gallon of gas doing it (costing them over $3)”

    Must be people different than those I see every day that will fill up at the Speedway right after a spike and pay the high price while across the street there’s plenty of pre-spike prices…

    If the gasoline industry had any credibility I would be inclined to agree with some of what was said here. But we’re talking about an industry that manages to obfuscate every aspect of its existence while telling us that “this is how the free markets work”. Pardon me if I sound just a bit skeptical here…

    I’m still waiting to hear what would happen if a station does not join in during a price spike but continues to adjust prices up or down in a more temperate way. Sure, for a few weeks it may be dicey during the down trend, but our imaginary retailer would be golden right after a spike…

    Costco / Sams seem to be doing this and they’re doing OK from what I can see. They don’t often have the absolute lowest price during a low tide but they don’t have the high price immediately after the spike like the rest of the lemmings do,

  27. Gas is going up to $3.59 in Grand Rapids today

  28. $3.499 in Ohio today. Warned my friends Friday that this was going to happen. Greedy turds.

  29. WHAT THE HELL??????? WHY is it spiking???????

  30. Why? Because Greedway can, as the market leader in the area.

  31. It is actions like those that make even the most pro-business, give-them-the-benefit-of-doubt consumer shake their head in disbelief.

  32. Once again, in Fort Wayne, the first to blink was Lassus stations, not Speedway. At the cheap stations, I still saw what I thought was a 10¢ margin. I don’t get this hike, coming on a Monday, just one week after a Monday hike. ABSOLUTELY NO CONNECTION WHATSOEVER WITH ACTUAL DEMAND AND SUPPLY.

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