Expected Price Calculation

Expected retail price = 1.06*(WP + RM + FF + TX + MS) + ST

WP = estimated wholesale price
(average of current and next month futures prices)

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.

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