Tag: competition

The Speedway Effect, Cincy style

Recently there was an article and news story on WCPO in Cincinnati about Speedway. In it they said a lot of things TheGasGame readers would already know, plus something I found interesting at first, and one outright falsehood.

They come right out of the gate letting us know Speedway’s secret: Real estate.

“We wanted to know how Speedway is able to change its prices market-wide without fear of what the station across the street is going to do. What we discovered is that in most cases, there is no station across the street.”

They used Google Maps and Street View to confirm that 63 out of 92 had no direct competition. This is how they are able to raise prices and not worry about the competition. I had never thought of this before. I started mapping Indianapolis Speedways, and sure enough, 30 of the 52 stations there have no direct competition.

I thought about this revelation a little further, and it really isn’t a Speedway thing. I found about the same ratio of other branded stations have stand alone stations compared to ones having competition. And then, it is also rare to see a Wal*Mart next to a Meijer, or Target; and a Lowes next to a Home Depot. Seems Speedway’s secret isn’t much of a secret at all. Not to mention they don’t do anything to prove this is why Speedway raises prices the way they do.

Then there is the outright falsehood.

“The vast majority of Speedway locations jumped to $2.65 with no corresponding spike in oil prices. Oil futures did go up 3.2 percent the day before, but gas prices in Cincinnati shot up by nearly four times that amount. And oil prices were actually falling while our gas prices were rising that Tuesday.”

The article and story was run on the 25th, but the spike up in prices happened on the 17th. Oil went up on the 17th, not down. Also, oil does not set the price of gas in this area (the PADD II). That would be the Chicago Mercantile trading of the Chicago Spot.

An analysis of the Chicago Spot from November 9th to the 17th shows that while it rose from $1.8218 to $1.9224, the average price of gas fell, almost 11 cents in Indiana, 9 cents in Michigan and 13 cents in Ohio. The Speedway spike caused averages in those three areas to go up 17 cents in Indiana, 11 cents in Michigan (with higher UP prices included), and 22 cents in Ohio.

They were far from jumping up with no correlating spike. They did not even meet the difference in each area. A 10 cent rise added to how the average fell in each area shows Speedway undercut Indiana by 4 cents, Michigan 8 cents and 1 cent in Ohio.

The rest is stuff we here at TheGasGame have been preaching a long time, long before even I came along. Speedway is the leader, selling 1 of every 5 gallons of gas. They have more corporate stations that any other. After Speedway rises, others follow, a statement that flies in the face of the earlier revelation that Speedway stations have no local competition.

If you haven’t visited the “Speedway Effect” article here at TheGasGame, I suggest you do so. You’ll learn far more accurate information than you did with this article. Also, if you have followed me at my Fair Price threads in the GasBuddy forums in Indianapolis, Indiana and Michigan, you can see I have discovered the pattern, and can pretty accurately predict when a spike will happen.

My new feature here at TheGasGame continues that. It’s called “The Spike Line”. It is a new name for what I have been doing all along in the “Fair Price” threads. It’s just a more accurate title. When the Spike Line is crossed, you can expect a spike up in prices from Speedway, it’s that simple. If there are other circumstances to cause or prevent a spike I’ll let you know that there as well. It’s just another way that TheGasGame is helping you save money. It’s one of the big reason’s I am proud to be a part of it.

Not feeling like playing today: fill up for $1.50 if you can and go home

Tuesday, December 23, 2008, 1:45 PM:  Let’s review what has happened since the double-hike of December 11.  First, in Standale, Meijer didn’t match the second hike to $1.75, so prices were back to $1.59 the next day.  (Hooray for competition!)  Since then, they have not changed very much and were $1.55 or so this morning.  Everywhere else, prices have dropped, sometimes to the $1.50’s, sometimes still in the upper $1.60’s.  I understand from GrandRapidsGasPrices.com that gas is $1.45 in Hudsonville today.  Are they itching for a pre-Christmas hike on Wednesday?

Looking at NYMEX, prices are 20 cents a gallon cheaper than two weeks ago, including a big 8-cent drop yesterday.  AXXIS seems to be running ahead of NYMEX by a several cents, which is surprising this time of year.  Using NYMEX, there would be clearly no price hike this week.  Using AXXIS, it is not so clear.  So, I would fill up for $1.50 if I can and enjoy the holidays.
 

We’re rounding the corner… Chinese Economic Stimulus to cause higher prices

I’m getting quite close to announcing a price hike in Grand Rapids and other Michigan areas as wholesale prices rise this morning, due to news of a Chinese Stimulus program to help their economy. This is not good news for consumers, as we’ve benefited from lower Chinese demand in the form of less competition for oil and falling prices.

I’m expecting that the current gasoline prices in the area (some as low as $1.95) will perhaps be the lowest we see this winter (HOWEVER, this all is based on our economy making a “quick” recovery). I would definitely take the chance to fill up all your gas cans, vehicles, etc. as soon as possible as prices should begin their journey northward for Spring.

If nothing changes in wholesale prices today, I expect to see $2.19-$2.29 here rather soon. Wholesale markets were up a healthy amount overnight and have kept that going this morning.

FILL UP!

$4.09 comes a bit late, whats next?

First off, any rumor of $4.50+ gas in the Midwest is FALSE.

Just home from work and posting here to help aid in killing false rumors.

First of all, don’t expect shortages of gas. There is no need to panic buy, prices will come down over time, but the worse thing folks can do is think there isn’t enough gas. Thanks to the Canadians, we have oil flowing in from up North. Some Midwest refiners can refine the lower quality Canadian crude oil, so we really shouldn’t be worried. The only worry I have is how fast the Gulf refiners can get back online. Most pipelines and refiners in the Gulf are either still closed from Gustav or have closed due to Ike.

I don’t see prices going any higher this weekend than $4.25 MAX. It shouldn’t even get that high. The Governor is well aware of the situation and appears to have Michigan’s resources ready to fight gouging.

I have to say, gouging isn’t even likely. With so much competition, one station that starts to gouge would have to be followed by more. With corporate owned Speedway, it simply isn’t likely.

More later.

Patrick

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.

Yesterday was strange

On Monday morning, a price hike this week made sense to me, based on the NYMEX prices, and I posted a price hike prediction.  By Wednesday morning, though, NYMEX prices had dropped, making a price hike less likely.  Speedway decided to hike to $2.29 on Wednesday, but the wholesale price didn’t back them up, so they had to give back the hike at many places around town, due to competition.  In Standale, the $2.29 hike was matched by the competitors, and that is the price today.

As of noon today, NYMEX prices are about the same as yesterday, so we should be clear through the weekend, and there’s chance we will get down to $2 even somewhere in town.

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