It was twenty years ago this week when, on a sleepy Sunday morning, the Grand Rapids Press published my essay on predicting gas price hikes. Sorry, I can’t find it online, but here is how the essay began:
- Constantly changing gasoline prices upset everyone. Many letters have appeared in the Public Pulse in the past year, and now politicians are involved.
Also in June 2002, the first version of this website was established, and this was the first prediction:
- Wednesday, June 12, 2002: Gas price in Standale this morning was $1.34. Expect prices to continue to decline until early next week, getting down to $1.24.
And, funny, that prediction was WRONG! Since then, though, we’ve been CORRECT around 70% of the time, I’ve shown up on the local news, my Gas Buddy Patrick DeHaan launched his career as a energy markets analyst and frequent media contributor, and we’ve seen prices soar and collapse several times.
For newer readers, how does this work? It begins with the observation that, at least in the Midwest, there seems to be a silent whistle that goes out every once in a while and all retailers reset their prices up to a new value. (Most recently, that was $5.19.) Then, thanks to competition and hopefully a pause in upward wholesale pressure, prices start to fall, pennies per day, and it is varies depending on location. At some point, the whistle blows again, and our goal is to predict that hike a few days before it happens, and fill the tank at the lower price.
How do we do this? We start with any information we can find to estimate the wholesale price of gas. Typically, this involves using some “futures prices” which are set in publicly-traded markets, factoring in a chunk of federal and state taxes, as well as fudge factors like the cost of transporting gasoline from refineries to retailers, and then estimating the “margin” the retailers add on, based on their behavior with previous hikes. When the current retail price reflects a margin close to zero, that’s prime time for a new hike.
Since 2002, we’ve added to the Gas Game team, and we hope we’ve saved you a few dollars over the years. Or, at least given you a bit more feeling of control when it comes to the filling the tank. I know I have enjoyed moments of, “Going to fill up today and watch prices jump tomorrow”.
Will we do this for another 20 years? It is tempting, because I predict that Big Red and other retailers will continue playing their own games. Economists studying the matter seem to believe that it is inevitable, given the mix of competition, wholesale market trends, and consumer behavior.
Thank you to our loyal readers! — Ed Aboufadel, Ada, Michigan.
p.s.: No obvious sign of a “silent whistle” for the first half of this week.