Tag: money

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.

A weak dollar puts us in another pickle

Chicago Spot: $2.11 UP 0.0616
Fair price adjustment: 0.7948
Fair Price: 2.7662
Average selling price 2.7150
Margin over cost + profit: -0.0512

We are in dangerous territory. The commodities market is up yet again, this time on a weak dollar. Fair price is at break even, which can mean a spike is close at hand. But, we have already had a spike this week, so another one is not as likely to come. But we just came off a weekend where the margin was thin, and Speedway might not want to repeat that again. But the last time commodities spiked up like this (in May) Speedway lagged behind so much that Indiana gas stations lost money on the sale of fuel. But… well, you get the idea.

It would be prudent to watch the prices as they may climb going into the weekend. Indiana could see $2.75-2.80, Michigan and NW Indiana could be 5-10 cents higher. Or, we could see prices stagnate or drop very slowly… only the people in Ohio know what will happen.

Prices should continue to fall over the weekend

With the Chicago spot falling 25 cents since the 17th, and average prices falling only 13 cents, there is still plenty of room for stations to keep dropping their price. Margins are right around 12 cents, as well. We should be seeing a mid-$2.50 average by the end of the weekend, and some spots dropping into the $2.30s in Indiana and Michigan.

As I write this, Michigan and Indiana are very close to dropping below the national average for the first time since the 18th of May for Indiana, and all the way back to the 18th of April for Michigan. I have started updating the Facebook account again, and I predicted on Wednesday that we should pass the national average Saturday in the $2.55-2.60 range. We are very close to seeing this happen.

So, you can follow us here at www.thegasgame.com, and we also have a Twitter account (@thegasgame) and the Facebook account. Three great ways to help yourself save money by following TheGasGame.

Consumers get a spanking as prices rise to $2.69

Tuesday, May 26, 2009, 1:55 PM:  Woe to us.  Prices rose at random places on SATURDAY to $2.59, and today Speedway is making sure we understand with a system-wide re-set.  The new price in Michigan is $2.69 a gallon.  There are two separate issues here:  one is the relentless climb since April 27 (when gas was $1.99 a gallon).  The other is what happened this weekend.

The relentless climb could be just a delayed seasonal effect, as we get these moves every year in March and April, often related to the switch to summer blend gasoline.  I think, though, that after the stock market recovered from that scary low in early March, the speculators are looking to make money again and driving up wholesale energy prices is a way to do it.  I have some confidence in this observation because it isn’t that retail demand for gasoline is on the rise, and gold prices have been climbing lately, too.

As for this weekend, there are some goofy things going on in Chicago.  I learned this morning that wholesale prices went up a lot on Friday in Chicago and that’s what caused the hike to $2.69.  Now, this morning, they’ve dropped almost a dime a gallon, and maybe, just maybe, we’ll see that in our retail prices by Wednesday.  That’s a wish, not a prediction.

Something Different: Commodity-based ETFs

In this post, I am going to address a different topic related to speculating about gas prices:  Commodity-based ETF’s.  Early this year, I was posting about the US Gasoline Fund ETF (ticker symbol:  UGA).  If you have a strong opinion about gas prices, you could use this ETF to make money.  Except there are some unexpected tax consequences that I learned about recently due to a short-term “investment” of mine in an agricultural ETF called DBA.

Commodity and currency ETF’s make or lose money by investing in contracts (such as the NYMEX gasoline contracts).  They are treated as “pass through” corporations meaning that the expenses and profits of the corporation are passed on to the owners for tax purposes. So, instead of the ETF paying income tax on its profits in these contracts, if you own some ETF shares, you do!  At the end of the year, you get a K1 form that says, “Your share of the profits this year is $600.”  You have to fill out an extra tax form for this and declare it as income.  If the ETF lost money, then you get a write-off you can use.  This is all independent of the price of the ETF or any dividend payments.

Regular stocks don’t work this way.  If you buy shares in IBM, then IBM deals with these types of profits and losses, and you only have to worry about how the price per share has varied, and dividends.

For me, the upshot is that as much as I might want to buy UGA each December and hold it until August, I don’t want to deal with all of nonsense that goes with it.  But looking back over the decade, that has been a good trade most years.

Disclaimer: None of this should be considered tax advice.  I don’t have any financial interest (long or short or anything else) in UGA.

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