I have never, ever understood this. Gas is for the most part is a simple commodity. Sure, some prefer a premium brand (like Shell) to a cheaper one (like ARCO), but I can’t for the life of me figure out why there is such a wide variance even within a single mile or two of a city (and amongst the same brand!) I would think that supply and demand would reign supreme here. It’s the same stuff.
You get that one gas station that charges $0.10 less than all the others in the area and the lines are out to the street.
So where are supply and demand?
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Gas stations purchase their gas from brokers that pre-purchase their oil on the commodities exchanges using a financial tool called futures. A commodity future is a little bit different than a stock option because it has a delivery date when you actually will receive the commodity. This is used to stabilize the sale price of all kinds of goods. A farmer growing oranges will sell his years crop yield to a commodity broker up front. This allows the farmer to have a bad year or use the earnings to invest in his equipment. The same goes for oil. Every step in the supply chain from crude to gas is bought and sold as a promise of future delivery. When a bunch of refineries suddenly believe that crude will be in short supply the price of future gas delivery goes up. The actual stations have very little price setting power. Often a region will only have one gas broker this monopoly power forces all stations to make the call will we sell at a loss or sell at a price near break even.
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