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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There’s actually a lot of factors that go into this so it’s not quite as simple as it seems. One thing to note is that gas prices aren’t like the prices for something like a gallon of milk. A gallon of milk at the store is generally pretty static price wise, while gas prices vary up and down a LOT and literally constantly changing because their price is “elastic”. So the price per gallon may differ depending on when they bought the gallon and the price of oil at that time, not necessarily what the price of oil is now.
Other things are some places get better pricing based on how far the refinery is, how much it costs them to refine it, and even whah additive package is in it. This effects prices as well as brand recognition. Shell is considered higher quality gas so they can charge more than Arco. You also have the structure of the gas station where some are franchise so more people taking a cut or expecting bigger profits for shareholders.
Another factor is how the gas station makes it money. Some gas stations charge less for gas and make it up in their little store. So they may have a small mark up on gas to get you there, then when you go in and buy drinks, snacks, lotto tickets, beer, or cigarettes they make their profit there.
Gas very much follows supply and demand which is why when Covid hit all gas prices went down because the demand was low. One thing about gas is at this point it’s never going to really have no demand. People needs gas and while they can cut out certain driving, there’s still a basic need. Factor that with the constantly changing price, as well as the rest of the factors, and that’s what gas doesn’t have a single universal price for that particular area.
In my brief time in an IT Project with a fuel company, I’ve learned that it’s all largely dependent on the business model and location of the station. Stations near the main Petroleum depots tend to have really cheap prices compared to other stations of the same brand.
Speculation also factors a lot into it.
If people think the price of gas is going to shoot up (say because one idiot president cancels a pipeline out of spite, or a Russian dictator invades another country out of the blue), then speculators will buy a lot of oil futures. The prices of these commodity futures also dictates the overall price at the pump, regardless of what the current actual supply is. It’s also influenced by what people THINK the price WILL be
Adding a .02 to this but it’s kind of not answering your question. In the recent price hike the US released 80 billion barrels in the oil reserves in order to get the market back on track. Oil companies need to refill the reserves now and then we’ll see the prices drop. So oil companies are double dipping, but until we see the reserves topped up again you won’t see a drastic drop in gas station prices.
You also need to realize that gas station pumps are a very small portion of an Oil Companies revenue. Aerospace is where the bulk of their profits come from (plastics and natural gas are other revenue streams, but I’m keeping the discussion on Petroleum).
Is this right? That it can Jack up immediately but fall like a feather based on price per barrel? I don’t think so. We need something in the middle.
Gas Stations are Oligolopies. They are not operating in a free an open market, so the laws of supply and demand do not work the same way.
Instead of the market dictating the price, the price is dictated by the oil companies in a cartel-esque fashion. There is legislation to limit collusion. How effective or ineffective said legislation is, is up for debate.
Gas stations typically operate on a cost-plus basis, meaning they tack on a set amount per gallon on top of their cost. Might be 35 cents/gallon, might be 50 cents, etc.. Factors that may affect that added mark-up are things like operating costs (rent, employee wages), other revenue streams (minimart, repairs, car wash), customer volume (is rent spread across 100 customers/day or 1000/day), supply/demand of location(are they right off a highway? Are they the only station for miles around?). There may be local taxes, even within close proximity that change suburb to suburb or county to county, maybe even some very local neighborhood taxing district.
Gas stations make no money on gas. They make their money on you buying stuff inside the store. And gas stations are often franchised so while they are part of a larger chain, they may be individually owned. So they may choose to take a bigger loss on fuel to get people in.
where I live a gallon of gas is 3.959 a gallon, it takes about 11 gallons to fill my gas tank, or about 43.55
the cheep gas gas station is 3.859 a gallon to buy that same 11 gallons to fill my gas tank it cost 42. 45
this makes for a $1.10 different to fill my gas tank or about 2.6 %
a half gallon of almond milk at the local store in a town 22 miles a way ( I live in the sticks) Is 4.12after taxes.
at Walmart the same half gallon of almond milk is 3.74 in the same town this makes a 9.2 % price Variation, or nearly 4 times the price difference as gas for the cheep gas to the expensive gas.
Gas stations depend on selling snacks and auto service to make money. Gas is a break even product at best.
My cousins own a gas station. They set the price of gas at 2 cents more than Sheetz down the road because my cousins do full service. They make their actual money doing auto repair. The gas is just cash flow. If Sheetz goes up in price on fuel, they go up. If Sheetz goes down, they go down.
My guy down the road from my place makes all his money off of auto repair and especially tires. He sets his price a penny less than the Speedway down the road. That way, people come in and hopefully, later, buy a full set of tires.
It’s not just supply and demand. It depends on what deal that the owner can strike with the jobbers that distribute the gas to the stations. If an owner of a store has 20 stores and pushes higher volume, they get cheaper fuel. If a store sells only a few gallons at a higher rate, the supplier won’t cut any breaks. The difference is, that you can tie up 30k a month on fuel stock and make the same money charging higher prices and moving less fuel, while the guy down the street can tie up 130k a month moving massive amounts of fuel, and not make much more because he’s charging less anyways.
The guy tying up 130k a week in fuel supply is making more money on inside sales, though. Fuel isn’t generally sold to make money…it’s sold so that you might come buy 13 cent marked up drinks and snacks.
Gas stations are a terrible investment as far as what you must pay in order to make penny profits. You are surviving on sheer volume. They’re a great investment if you can afford to tie up a lot of money permanently.
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