Heading back under $3 again. Here are some theories why.

Sunday, October 26, 2014, 5:00PM:  On June 5, there was a hike to $3.99 in Michigan.  Today, you can find gas under $3.  What a move!  Looking ahead, the recent jump $3.19 coincided with another drop in wholesale prices, so there is a lot of room for prices to drop this week.  I would be looking for gas below $2.90 soon.

Now, what explains this 25% drop in retail prices since June, and an even better record the past several years?  I have a few theories:  (1) In September, I wonder if some hedge funds got caught “leaning the wrong way”, betting on higher energy prices.  When that did not materialize, they had to liquidate their bets, causing a sudden drop in prices.  I have no evidence of this, other than I’ve seen this happen before, especially in stocks and other commodities.  (2)  There is significant evidence that the demand for oil and gas has been falling the past several years, while the supply has been rising, due in part to significant increases in US production.  We have been driving less, buying fewer cars, and fuel efficiency has been improving. Consequently, we have been buying less gasoline (which is what the Democrats wanted), while supplies have been increasing (which is what the Republicans wanted).  Hence, a bipartisan victory — lower prices.  (3)  Energy “investors” are looking at the Middle East differently than they did a decade ago.  Then, with the war in Iraq, there was a “global tensions premium” built into energy prices.  As our involvement in Iraq has wound down, the premium has slowly disappeared, and, in the case of the past few months, not so slowly.  What is confounding about this theory is that we have new Middle Eastern tensions (a.k.a., ISIS).  But, perhaps ISIS is not as big a deal as it appears, or perhaps the US really is heading towards energy independence as politicians have talked about since 9/11, and finally, in 2014, we are starting to reap the benefits.

In terms of the Gas Game, it is harder to predict price hikes when there are fewer hikes.  But I’m not complaining!!!! — Ed A.

Updated: October 26, 2014 — 5:17 pm

73 Comments

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  1. But let’s see again, Mike. The average price for Kalamazoo on Nov. 4 and 5 was $2.83. The peak average after that, on Nov. 7, was $2.98. That’s a market average spike of 15 cents.

    I’m sure there were certain stations that spiked as much as 30 cents. But, as has been pointed out many times here, basing analysis on only the most extreme examples in a given market is obviously misleading. All it does is stoke the flames of pointless negativity around here.

    BTW, the charts are available to everybody, to avoid these errors in the future.

    http://charts.gasbuddy.com/ch.gaschart?Country=Canada&Crude=f&Period=1&Areas=Kalamazoo,,&Unit=US%20$/G

  2. Additionally, that Gasbuddy chart posted by Timm has to be outdated, as I can’t find a single spike in Indianapolis in the past year that raised the market average more than 23 cents. Most spikes are in a fairly consistent 13-cent to 17-cent range.

    http://charts.gasbuddy.com/ch.gaschart?Country=Canada&Crude=f&Period=12&Areas=Indy,,&Unit=US $/G

    I can say with absolute certainty that the average spike in Indianapolis has NOT been 32 cents in the past year. If anybody wants to disagree, please feel free to provide published data with a recent timestamp.

  3. That chart may be a little old, but I think Fort Wayne is still one of the top three in size of spike. More stations have followed Speedway on lowering their prices to keep competitive, and so it makes the all for one price SPIKE seem even worse. I live the spike, and what Gas Buddy calls Fort Wayne, is probably a larger market than what most people experience. Their market may be a work zip code, and a live in zip code, with maybe another zip code where they shop or eat.

  4. Okay, thanks for the follow-up. I won’t dispute that the Midwest sees larger spikes than everywhere else. That’s a given. Those specific numbers just seem exaggerated, at least based on more recent numbers. Even in the spring, when the overall trend is upward, they aren’t realistic, at least in Indy.

  5. Ren, I am sure you are familiar enough with the concept of zone pricing. In the good old days the low price zones would consistently see near 50 cent spikes because they (low price zones) dropped the most, a rather constant 19 cent lower than the regular price zones.

    In recent days of course Speedway seems to have toned down their spikes so recent numbers may not be indicative of past pricing adventures.

  6. Turbo, of course I’m familiar with “zone pricing” because you’ve mentioned it countless times.

    However, again, one makes an error if one pays attention only to the biggest spikes in individual stations, or pockets of stations, instead of the change in the overall market average.

  7. I still hold that any person’s market is not exactly the same as a gasoline sales ‘region’ or ‘marketing region’. If you work near a corner with Kroger, Speedway, and Lassus, you will experience greater spike sizes than if your life is spent around a bunch of Ricker stations laced with Clark and a privately owned Shell. Most people see only small portions of a couple zip codes regularily and that sets their experience with gas spikes.

  8. I agree Timm, i don’t give a rip what the market average is, i drive 43 miles one way to work and pass certain gas stations along the way. Those gas stations in my area other than speedway, usually will have a higher spike because they dip lower before the spike. We are merely reporting what we are seeing and paying along our route, not the market average.

  9. I see some discussions of personal experiences (no problem with that), but too often people are projecting their tiny corner of the world to the broader market. Saying “my station down the street spiked 30 cents” might be accurate; but saying “another 30-cent Speedway spike” normally is NOT accurate.

    And, ultimately, this is a regional board. Let’s make sure we delineate between our own anecdotes and a fuller discussion of Midwestern pricing practices.

  10. Well the “tiny” corner that I live in, is about a 10 – 20 mile radius and yes, when Speedway spikes 30 cents in my area, “They all” spike 30 cents. Then everyone else follows the exact 30 cents. Now the 20 cent spike that might be outside my tiny corner is not worth me driving to for the 10 cents difference because of the cost of the gas to drive that far. So yes to the everyday people, the 30 cent Speedway spike is accurate.

  11. Let us not forget that Speedway, and others know exactly what a granular market can do for corporate profits. And they count on the “smoothing” effect of statistics applied to a less granular market. Not driving to save 7¢ a gallon because it will cost more overall is exactly what they count on. I may live in the US, and that pricing model is very smooth compared to where I am forced to buy; in a much more granular market, as every one’s “purchasing” market is.

  12. South Bend IN Speedway spike has begun. Was $2.83-$2.84 @ Speedway, now going to $2.99. Some stations on the usually lower south side are down to $2.76. Current SBN avg is $2.855. I hit $2.80 with both cars last 2 days.

  13. We can say with assurance that Indiana will have not 30-40 cent spike this time. Heck, GREEDway hardly gave Indiana much of a chance to lower the pump price. This area must be a squirrel magnet.

  14. In the 40+ years I’ve seen spiking in the Fort Wayne area, the spike generally runs between 5% and 10% of the retail price, more generally at the 6 to 7%. It will be very unusual to see a 30¢ or larger spike with prices generally under $3.00. While I have spoken about a 50¢ spike I have witnessed, it was when prices were at almost $4.00, and it was very unusual.

    A spike out of nowhere yesterday. Are we spiking more often and at lower levels lately?

  15. Well its Thursday, that must me a hike by Greedway. 3.09 in Kzoo area…

  16. Hiking to $3.09 in Grand Rapids!!

  17. what is that word again…greed, no thats not it…..um legal profit, doh i’m so confused!

  18. Watch it Robert, the Greedway lovers will be all over you for that…you know there is nothing wrong with them over charging us, because it’s legal.. You know if you don’t like it, just don’t buy gas…

  19. My young children are less whiny and sarcastic than a couple of you guys.

  20. You’re paying less for gas than you’ve paid in the last five years, even before adjusting for inflation. But it’s ten cents higher than you think it should be, so everybody has to hear how angry you are. On top of that, you misrepresent the opinions of the people who don’t fall in lock-step with your anger, and even though you don’t actually understand them, you choose to mock them sarcastically anyway.

    Just because these things happen throughout the Internet, it doesn’t mean that every corner of the Internet has to be infested with it.

  21. So, I’m moving on to the next new post. Hopefully we can keep it sane and rational, even if we don’t all see eye-to-eye…

  22. Ren, it’s not about the price of gasoline in itself. High oil prices were the catalyst for the Great Depression of 2007-present…

    Keep prices at around 3.00 and maybe we can recover enough to be optimistic. But every time we see spikes we have been conditioned to think this is another march to 4.00 as we have seen many times. It’s not about us the consumers being cynical.

    It’s about us trusting the oil industry.

  23. Ren the fact of the matter is, chicago spot is pretty low right now and going by past practices in tax calculations, the price to retailers appears significantly lower then what they are charging the consumers. Yeah, i get it, they are out to make money but as said above the profit seems larger than normal in recent weeks. I was not “angry” as you deciphered from my text, nor am i forcing my opinion on anybody just because they read my post.

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