The Gas Game » Stats & Math

Expected retail price =

1.06*(WP + RM + FF + TX + MS) + ST

WP = estimated wholesale price
(average of current and next month futures prices. Currently being used: an average of HU and RB contracts on NYMEX. HU to be phased out by NYMEX at the end of 2006 in favor of RB.)

RM = estimated retail markup (as much as 20 cents per gallon)

FF = “fudge factor”, which takes into account variations between New York and Chicago wholesale prices, and competition situations (can vary from -10 to 25 cents)

TX = federal gasoline tax per gallon (18.4 cents per gallon)

MS = miscellaneous (middlemen, freight, and storage fees, about 3 cents)

ST = state gasoline tax per gallon (19 cents per gallon, not subject to state sales tax)

Notes: Multiplying by 1.06 takes the state sales tax into account. As RM goes down over several days, the likelihood of a price hike increases. Retailers pre-pay 12.7 cents per gallon of the Michigan sales tax when the receive a new shipment of gasoline and the rest after the sale. Credit-card sales cost retailers about 3% of the retail price, which comes straight out of RM.

In the Grand Rapids, MI area, from June 1, 2001 to mid-July 2007, there have been 245 price hikes over a period of about 2230 days. That averages out to a price hike every 11 days.

When there is a price hike, when does it occur?

Mondays: 28 times; 11.4%
Tuesdays: 56 times; 22.9%
Wednesdays: 50 times; 20.4%
Thursdays: 98 times; 40.0%
Fridays: 13 times; 5.3%
(All 13 Friday price hikes have occured since mid-2004.)

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I established the Gas Game web site in 2002. In the period from June 2002 through April 2007, 2/3 of my predictions have been CORRECT, while 1/3 have been WRONG. An analysis of these prediction reveals that I did a better job through mid 2005 than I have done the past two years.

I suspect there are two reasons for this. First, with retail prices basically double what they were in 2003, it is a lot easier for these prices to be jumping around, making it harder to predict. Specifically, a 30-cent change in price today is, percentage-wise, the same as a 15-cent change in price in 2003, but because the estimated 20-cent margin hasn’t changed, it is a lot easier for that margin to disappear quickly after a change in the wholesale price.

Second, I haven’t been able to devote the same amount of time to the Gas Game the past two years, and that has affected my performance.

To see how I’ve done with predictions since 2002, I’ve created a chart, giving myself a score of +1 for each CORRECT prediction and -1 for each WRONG prediction. Occasionally, I will score a prediction 1/2 CORRECT, 1/2 WRONG, so that would give you a net score of 0. For this sequence of scores, I’ve calculated the sum of the last 10 predictions, and a graph is presented below. You can see that my best work was during the winter of 2004, while I struggled in May 2004 and also over the past year.

Although I would like to do better, I know that I’ve saved money enough times by buying a day ahead of the price hike to make it worth it, and I hope that I have helped some of you, too.