If gasoline has such a low profit margin, then why the huge difference in prices?

[Rich Engelhardt]

I constantly see someone or another say that gas stations struggle because of the low profit margin on gas.

Then I see the prices and wonder who are they trying to kid?

The three stations a half mile from me is selling 87 octane for $3.55 a gallon.
Meanwhile, the Get Go station that's 4 miles away is selling 87 octane for $3.19 a gallon when I swipe my "loyalty" (yeah right! ) card and get a $.03 a gallon discount.

That's a $.36 a gallon difference - or - 11%.

Just another lie from the oil industry I guess.

[Art Mann]

The oil industry does not set prices at local stations. Also, 11% is a tiny markup compared to many things you buy without giving it a secon thought.. I would not be surprised to find that tool stores mark up their products 40% or more. Caskets are often marked up 300% or more as your punishment for dying.

[Scott Shepherd]

Depends when they bought the gas. If the $3.55 a gallon people paid $3.25 a gallon and their tanks are full, they probably aren't going to lower the price until the tanks are empty or close to it.

If you ran a store, and paid $3.25 for 30,000 gallons of gas and then the price dropped, would you sell it for less than you bought it for?

Oil companies (owned by you if you have a 401K program) are all publicly traded companies, you can see their margins in their financial statements.

There's a gas station here that's 60 cents higher than anyone else, always. Has been since the day they opened it. Does that one station owner represent the entire oil company? I don't think so.

[Barry Richardson]

Around here, it varies too, maybe not that much though. I am told the main reason is that different municipalities levy different taxes on gas.

[Judson Green]

In my immediate area the price of one station to the next is usually within a nickel or less of one another and usually that difference only lasts a few hours then they're the same.

The outliers are two stations right off the freeway. Those two can be a dime or more per.

[Brian Elfert]

Gas stations will immediately raise prices if oil prices rise, or a refinery closes, or whatever. How come they have no problem raising prices 25 cents in one day, but if wholesale gas/oil prices drop it take days or weeks to make it to retail?

Why is it okay for a gas station to make extra profit because paid say $3.00 a gallon for their gas, were selling it for $3.25, but raised it to $3.50 a gallon, but they can't lose money when they have to sell $3.25 gas for $3.00 because the wholesale price dropped to $2.75? If they can reap extra profits when gas prices go up why can't they lose a little money when prices come down?

[Scott Shepherd]

Why is it okay for a gas station to make extra profit because paid say $3.00 a gallon for their gas, were selling it for $3.25, but raised it to $3.50 a gallon, but they can't lose money when they have to sell $3.25 gas for $3.00 because the wholesale price dropped to $2.75? If they can reap extra profits when gas prices go up why can't they lose a little money when prices come down?

Would you run a business and charge less than you paid for things because you might make more some other time? Or watch the price drop even more so you can lose even more?

No other business does that, why should the gas station do it? I've never understood the fascination with oil companies and what's "fair". It never seems to apply to any other business. Food Lion charges more for Milk than Walmart. I don't see any threads about why Food Lion charges more for milk.

[Brian Elfert]

Would you run a business and charge less than you paid for things because you might make more some other time? Or watch the price drop even more so you can lose even more?

No other business does that, why should the gas station do it? I've never understood the fascination with oil companies and what's "fair". It never seems to apply to any other business. Food Lion charges more for Milk than Walmart. I don't see any threads about why Food Lion charges more for milk.

Businesses choose to lose money on certain products all the time. Why is it okay for gas station owners to make double or triple their normal profit margin when gas prices are spiking, but it isn't okay to them to lose money when prices are falling? How come gas station operators price gas based on the next load when prices are rising, but they base prices on what is in the tank when prices are falling? They shouldn't be able to have it both ways.

[Brian Elfert]

People bitch and moan about oil/gas prices because oil is such a big part of our economy and such a big part of the family budget. No other product consumed by nearly 100% of Americans is so present in our media. News outlets constantly report the price of oil. There are news stories nearly every day about oil and gasoline. One can look on the Internet and see what wholesale gasoline is selling for that day. If John Q. Public sees that the wholesale price of gasoline dropped 5 cents that day and gas stations raise the price by 5 cents that day then they feel ripped off.

No other businesses advertise the retail prices on hundreds of thousands of signs across the country. Grocery stores don't have huge signs showing the price of milk in front of their stores and on billboards. Milk prices can vary by up to 50% between stores. Gas prices rarely vary by more than 1% or 2% between stations in the same area.

[Jason Roehl]

Gas stations will immediately raise prices if oil prices rise, or a refinery closes, or whatever. How come they have no problem raising prices 25 cents in one day, but if wholesale gas/oil prices drop it take days or weeks to make it to retail?

Why is it okay for a gas station to make extra profit because paid say $3.00 a gallon for their gas, were selling it for $3.25, but raised it to $3.50 a gallon, but they can't lose money when they have to sell $3.25 gas for $3.00 because the wholesale price dropped to $2.75? If they can reap extra profits when gas prices go up why can't they lose a little money when prices come down?

It's partly about what they bought the current tank of gas for, but it's also partly about how much the next tank of gas is going to cost--when they're buying 6,000 gallons of gas at a time, and generally only making 2-4 cents per gallon profit margin ($120-240 per delivery), a too-low price can leave them with too little cash reserve for the next tank.

I've noticed that the stations that often have the lowest prices are also the first ones to raise prices when the price of oil goes up.

[Brian Elfert]

I'll relate what happened to me at a small engine repair recently. Very small rural operation. I needed a clutch for my riding mower. He had one that matched exactly. Price on the tag said $89, but the owner said no way can I sell it for $89 as that is less than I can get another one in for. He said the price is $195. I wasn't upset as $195 was less than I could get one online for. In the end, the owner found me a John Deere clutch that would work with an extra shim for only $150. I was perfectly willing to buy the $195 one that fit exactly, but the owner is big on saving customers money. I keep going back even though it is a 25 mile drive for me.

If he had sold me that clutch he would had made a pretty decent profit, and I doubt that he would have ordered another one for stock since it is a slow moving item it appears.

[Scott Shepherd]

Businesses choose to lose money on certain products all the time. Why is it okay for gas station owners to make double or triple their normal profit margin when gas prices are spiking, but it isn't okay to them to lose money when prices are falling? How come gas station operators price gas based on the next load when prices are rising, but they base prices on what is in the tank when prices are falling? They shouldn't be able to have it both ways.

Ummm....because we live in a democracy where you can chose to do what you want and you'll be rewarded or penalized by people coming to your business or abandoning it?

I still don't get the fascination with gas prices. If the gas goes up .03 a gallon, that's . 45 cents more per fill up. My guess is most people fill up once a week, maybe 1.5 times a week. So we'll get fixated on something that costs us 45 cents more a week and scream that we're being ripped off, meanwhile, food prices went up 40% and cost you $50 more week and, again, no one says anything.

Just for the record, stores do publish their prices every day. It's in the local news papers daily as advertising.

[Gordon Harner]

I don't know the suppliers current pricing policies. Many retail brands don't have refineries today or are separate corporations. But, it used to be that the suppliers had zone pricing whereby depending on the zone the same product was wholesaled at different prices. My big gripe is heating oil, not taxed as diesel for diesel vehicles but priced at the same level. Go figure. I know, the supplier has to cover his overhead and make a profit. Around here, heating oil not taxed is higher than diesel at the pump'

[Chuck Wintle]

I constantly see someone or another say that gas stations struggle because of the low profit margine on gas.

Then I see the prices and wonder who are they trying to kid?

The three stations a half mile from me is selling 87 octane for $3.55 a gallon.
Meanwhile, the Get Go station that's 4 miles away is selling 87 octane for $3.19 a gallon when I swipe my "loyalty" (yeah right! ) card and get a $.03 a gallon discount.

That's a $.36 a gallon difference - or - 11%.

Just another lie from the oil industry I guess.

My opinion is that pricing is less influenced by real market factors such as supply and demand and more by the capriciousness of marketing executives making decisions not based on reality. Where I live all gasoline comes from 1 or 2 refineries yet this same gas can differ in price by as much as 15 cents/ liter depending upon where it is sold.

[Jim Koepke]

Around here, heating oil not taxed is higher than diesel at the pump'

If the diesel from the pump was on a truck that came around and pumped into your car, you can bet the price would be higher.

jtk

[Wade Lippman]

There's a gas station here that's .60 cents higher than anyone else, always. Has been since the day they opened it. .

The nearest gas station to me is $0.50 higher than two others a half mile away. I have always wondered how he stays in business; I surely have never bought from him. Of course, he only has to sell a quarter the gas as the other guys to make the same profit; maybe there are enough really stupid people to make it worthwhile?

[Myk Rian]

A Speedway near here started charging $.15 more for each grade step. The only station doing that. I don't go there anymore.

Remember when the price would change only when the stations got a new delivery? I wonder what happened with that.

[Rick Potter]

Around here gas is higher than elsewhere. Usually around $4. Costco is generally the least expensive place to buy, and if you have their American Express card, you get back 3%. That would be about 12 cents off the normally cheapest gas in this area.

Back in the day, when there were numerous independent stations, they could charge what they wanted, and there were gas wars pretty regularly. In this area, most independents are long gone, bought out by the major brands, who are now trying to get out of the retail end. They prefer selling to chains, like 7-11, etc, and not dealing with the end customer.

That's how it was 'splained to me, anyway. 76 gas seems to be only in small chains now, I haven't seen a Texaco station in years (are they still around?). There are still some Chevron stations, but all self serve with convenience stores around me. Not too many service stations locally either. They have either dropped selling gas, or changed the service area to a mini market.

Progress, I guess.

Question of the day....Why do they still sell mid grade gasoline? Most cars take 87, some take premium 91, can't think of any that recommend mid grade 89.

Rick P

[Brian Elfert]

Ummm....because we live in a democracy where you can chose to do what you want and you'll be rewarded or penalized by people coming to your business or abandoning it?


Most of us have little choice on buying gas. It isn't like if gas jumped 25 cents overnight that we would stay home from work rather than filling the tank. I suppose one could buy an electric car, but not often cost effective.

Every 5 cents a gallon costs me almost a buck per fill-up. It really isn't a big deal for five or ten cents a gallon. I do start to notice when gas goes from say $3.25 a gallon to $3.75 a gallon. We can also wish for $2 a gallon gas, but I realize $3 plus per gallons is here to stay. I'm just hoping we don't see the days of gas consistently over $4 any time soon. The price of oil does affect everything we buy as it costs more to make and transport when oil prices go up.

[Greg Peterson]

Several billions in profit is a lot of profit. Nevermind the percentage. That's a whole lot of money. Margins may be low, but everyone needs oil, so margins don't matter as long as they stay on the plus of the ledger.

[Scott Shepherd]

Several billions in profit is a lot of profit. Nevermind the percentage. That's a whole lot of money. Margins may be low, but everyone needs oil, so margins don't matter as long as they stay on the plus of the ledger.

Great Greg, do you have a 401K program? If so, YOU are the one profiting from all these profits of the big bad greedy oil companies. The truth, look it up, is that huge percentages, like 30% of the oil stocks are owned by pension funds. You know, those things where workers get quarterly statements that tell them they made or lost money?

Oil executives own about 3% of the stock. The rest is owned by IRA's, Pension Funds, and normal people like you and me that own stock. So when you're prepared to watch your pension and IRA's go down instead of up, then we'll all be good. You can't have it both ways. You can't want your retirement funds to go up and then bash the companies that are responsible for it going up.

They are PUBLICLY TRADED COMPANIES, meaning people just like those reading this forum are the one's that own the company. There is no "Darth Vader" sitting in a room counting the zillions of dollars.

[Howard Garner]

Several billions may be a lot of money, but they have a lots of sales as well. Look at the return on investment, not a lot different that many smaller companies.
People are happy to make $2.00 on a $20 dollar investment, but hate it when is $2billion on $20billion. But still the same profit margin. (example only)

Howard G

[David Weaver]

I'd imagine rent and what some of the places want to sell, franchise fees (if there are some), required spending for appearance probably makes a lot of difference. (what places want to sell meaning that some stations, especially the few that may still have service, too, don't seem to want to sell much gas. Around here, they're always about 20 cents or more higher).

In terms of whether or not the station owners are getting rich and sitting around counting our money, I guess there are probably some with primo locations that do well. In the last 5 years, we've had two stations go completely out of business and I live in a very populous area. I'd assume that slow creep down from high prices is where the stations make most of their money and if they didn't do that, a lot wouldn't have incentive to stay in business.

As far as the cost of gasoline, I'll complain about it when I know I could go to the effort to make it for less - and still give up most of my earnings to investors.

Cheapest here are costco and sams, always. Everyone else is within 5 cents on regular. The super bonus at sams is for those of us who have a car that demands premium (and I've tried to run mine on regular, it doesn't tolerate it). Sams is 20 cents higher than regular, and all of the stations are about 40 cents higher than regular - and their regular is already 10 cents higher than sams. So on the premium, that's roughly 30 cents a gallon.

Well, I do have one complaint about gasoline, and that is that I don't like ethanol in mine. I don't like that I get decreased mileage, higher food costs and that the fuel lines on all of my small engine stuff got eaten up before someone directed me to get premium for small engine stuff because it doesn't usually come blended.

[Greg Peterson]

They are PUBLICLY TRADED COMPANIES, meaning people just like those reading this forum are the one's that own the company. There is no "Darth Vader" sitting in a room counting the zillions of dollars.

Yeah Scott, I get it. Most of us have only ourselves to blame for the behavior of corporatists. They are simply replying to our demands for greater profits. Who here among us is brave enough to say 'bring back the higher cost jobs, even if it means my 401k portfolio will take a hit'? Sure we complain about this stuff, but only because it's easier than addressing the root cause.

Regardless, even if gas prices double over night, the industry as a whole would the last one to feel the pain. Society will need oil for the foreseeable future. Demand is not going away in my lifetime. When you start talking about quarterly profits in the billions, you are describing an entity whose scale is as massive as the global economy can support. And we're all along for the ride in one way or another. Like it or not.

[David Weaver]

Greg, without the markets there is no way for you to store productivity from one part of your life so that it can be used later for consumption.

Or as a friend of mine says when people decry the markets and business structure here...a friend worked in russia and kazakhstan...."OK, Comrade"

[Brad Schafer]

Question of the day....Why do they still sell mid grade gasoline? Most cars take 87, some take premium 91, can't think of any that recommend mid grade 89.

Rick P

<digression>

most 2 cycle engines require 89. local dealer told me 87 "burns up 2 cycle engines" ... and the saw manuals call specifically for 89. a nice stihl saw of mine lost an engine due to this. older 4 cycles don't care for 87 either (e.g. 1956 Ferguson 35 tractor).

</digression>

as for gas price fluctuation, welcome to the world of commodity pricing. cost is a complex problem - over-regulation, (goofy, IMO) EPA regs, artificial limits on acquiring/refining our own supply, political deals with [pick favorite entity], variable tax rates, etc. removing the effects of politicians and popular culture would go a long way toward changing this, but that requires some pretty massive change.

meanwhile, Gas Buddy is a pretty useful thing.

[Brian Elfert]

Locally, there are gas stations all over the place that have gone under since 2008. A number have been torn down and redeveloped recently. Strangely, the station closest to me closed their convenience store and moved the convenience side of the business into a tiny little side office in the same building. The convenience store area was relatively new and was very nice. No idea why a gas station would abandon the most profitable part of their business.

[Rich Riddle]

Down the street, there are three stations at the entrance/exit of an interstate. A few weeks ago the news did a story concerning why those stations charge an average of 40 or 50 cents a gallon more than other stations a couple of miles from them. Stations long ago stopped making the mythical 2 or 3 cents a gallon.

[David Weaver]

I don't think they're making 2 or 3 cents a gallon now, they're dealing with gas that's 3 or 4 times the price. What do we think they're making, though? I don't know, but credit cards companies extracting 8-10 cents per gallon are probably doing just as well as the gas stations are. I just can't imagine station owners screwing around with the concessions/conveniences in the gas stations if gas was so profitable. The two stations near me that have closed are the only two in the area that were selling only gas and cigarettes. Figure in the middle of the day, they always had a couple of cars pumping gas (highly populated area). If you go down the road here, the more popular stations probably have a steady stream of two or three times as many cars on the pumps, and get gas deliveries at least daily.

If they can't keep a station running with somewhat constant business, they can't be making that much on the gas. The stations that do pump a lot of gas and have a lot of customers are also the ones with the best concessions/conveniences. I'd imagine after they amortize the cost of their pumps and tanks and environmental compliance and maintenance, they probably don't make much money on gas, otherwise the two cigarette only stations would've stayed in business - it only takes one person to operate those types - there's literally only room for one person in their buildings.

[Dan Lee]

Who is really making the killing on gas? Well here in California total Fed/State/local taxes are north of 70 cents a gallon, pretty nice ROI.

[Chuck Saunders]

For most convenience stores the profit comes from inside the store, Gas is just to get you to stop. Our local QuikTrip's fought the pay at the pump ordinance for that reason. They also were found to have depressed the price of gasoline by 20 cents a gallon in the area.

We try to connect gas increases to some event or justification when the reality is "because they can"

[Kev Williams]

Have you ever had the chance to glance at a convenience store invoice that a supplier left out in the open? I did one day, profit margins had their own column. Lowest I found was 53%, many numbers were in the 70%'s. So I guess it sucks to own a store where you buy milk and potato chips for $1 and can sell it for $1.70, but the gas out front you're paying $3.40 for sells for $3.60. Might not be MUCH profit, but it's still profit...

Here in the SLC area, around this time of year, every year, for some reason we have some of the highest priced gas in the country. It's like the retailers have a "lets get even" month every August. Investigations have been done many time to figure out why. The retailers aren't required to open their books, so they don't, and their answer to why they charge so much is simply "because we can." Ok fine, but know what the really sucky part is? Salt Lake has several refineries, and they get most of their oil from Wyoming. Practically zero shipping costs involved from start to finish. And the final low blow? Our regular is 85 octane, premium is all of 91, because 'you don't need higher octane at this altitude'. (4500').

So we're basically paying the highest price for the lowest grade gas that's the cheapest to manufacture.... :(

[Rich Engelhardt]

We try to connect gas increases to some event or justification when the reality is "because they can"I agree - however - it still infuriates me that I'm treated like an idiot that's willing to swallow anything.

[Brian Elfert]

Down the street, there are three stations at the entrance/exit of an interstate. A few weeks ago the news did a story concerning why those stations charge an average of 40 or 50 cents a gallon more than other stations a couple of miles from them. Stations long ago stopped making the mythical 2 or 3 cents a gallon.

In 2002 I had a gasoline powered truck that got about 6 to 7 MPG towing. We stopped in one town in Wyoming at the first exit because we were running low on gas. The stations at that exit were charging about 30 cents a gallon over the going rate which at the time was maybe $1.40 per gallon. The town had a second exit so we went there and gas was normally priced. The stations at the first exit seemed to be aiming to rip off those desperate for gas as they were the first stations for like 50 miles.

[David Weaver]

Have you ever had the chance to glance at a convenience store invoice that a supplier left out in the open? I did one day, profit margins had their own column. Lowest I found was 53%, many numbers were in the 70%'s. So I guess it sucks to own a store where you buy milk and potato chips for $1 and can sell it for $1.70, but the gas out front you're paying $3.40 for sells for $3.60. Might not be MUCH profit, but it's still profit...

Here in the SLC area, around this time of year, every year, for some reason we have some of the highest priced gas in the country. It's like the retailers have a "lets get even" month every August. Investigations have been done many time to figure out why. The retailers aren't required to open their books, so they don't, and their answer to why they charge so much is simply "because we can." Ok fine, but know what the really sucky part is? Salt Lake has several refineries, and they get most of their oil from Wyoming. Practically zero shipping costs involved from start to finish. And the final low blow? Our regular is 85 octane, premium is all of 91, because 'you don't need higher octane at this altitude'. (4500').

So we're basically paying the highest price for the lowest grade gas that's the cheapest to manufacture.... :(

It again goes back to what it costs to own and run those stations. I'm sure they have some sort of franchise fees or costs to make their store look as the brand requires, significant real estate taxes, cost of environmental compliance, etc. If it was easy just to make money hand over fist in stations, more would be opened up. For the convenience items, I would've figured 100%, but I guess that's a bit high. Always figured most of the stations that are smaller just get their concessions at sams or something and put the boxes in their stores - sams does target small businesses of those types and give them their own hours to shop.

Where I grew up, we knew someone who owned one of the main gas stations in town. They had three daughters who all went through a school where my dad taught, and they had a store that was small by current standards, but it did have convenience items (milk, soda, candy bars, etc). The girls worked in the store during the week, which I could never understand (they were by themselves in town late at night). They were not poor, but they were not by any means rich, either. Most of the gripes in this world about what other businesses make come from folks who don't spend their days trying to run a business at all, on the assumption that a significant portion of margins go into someone's pockets in a sailboat, but most of the initial margin in a lot of those businesses just goes to pay day to day expenses, or it would be easier for someone else to just open up another business, cut their final expectation in half and undercut the first person.

As far as the interstates go, it seems like every interstate station around here is 5 to 10 cents higher per gallon, sometimes a little more. But I've also seen what land sells for near an interstate exchange, and it's not $100,000 an acre. Like the rest here, if there's a station a half mile down the road that's 10 or 15 cents cheaper, I make the drive. We *do* pay for convenience sometimes, and the interstate example is just one of them.

I guess it depends on your state, too. In PA, our property taxes are *very high*, and if you get that expensive interstate land, you get to pay twice. Once when you buy it, and then every year in a rent payment to the local government that they call taxes. The values for taxes are high enough here right now on property that amortizing them is equivalent to more than half of the property value. It's as if you never actually even own half of your property, even though you got to pay for all of it.

[David Weaver]

Just as an interesting exercise, I wonder how many different charges we could estimate for a business like a gas station.
* mortgage or rent
* property taxes (if owned)
* pump acquisition and ongoing repair
* tank installation and ongoing maintenance
* freezer and fridge items in the building and repair
* HVAC in the building, plus the coolers
* Electrical (most of the stations here have huge amounts of lighting)
* half of the SS and medicare wages for the employees in the store (since half don't show up in the employees' paychecks)
* unemployment and workers comp
* certifications for food handling for employees (in PA, if you have hot dogs, someone in the store has to be food certified, which costs at least $200 for each person who will be tending the thing)
* credit card merchant accounts and credit card fees
* swipe fees for debit cards
* security system and/or monitoring
* landscaping
* building maintenance
* Pavement of the lot and paving maintenance and snow removal
* franchise fees (are there any for gas stations like there are restaurants)?
* Any local recurring business, licensing or inspection fees
* Accounting, book work, payroll and tax preparation fees

What else is there?

[ray hampton]

Just as an interesting exercise, I wonder how many different charges we could estimate for a business like a gas station.
* mortgage or rent
* property taxes (if owned)
* pump acquisition and ongoing repair
* tank installation and ongoing maintenance
* freezer and fridge items in the building and repair
* HVAC in the building, plus the coolers
* Electrical (most of the stations here have huge amounts of lighting)
* half of the SS and medicare wages for the employees in the store (since half don't show up in the employees' paychecks)
* unemployment and workers comp
* certifications for food handling for employees (in PA, if you have hot dogs, someone in the store has to be food certified, which costs at least $200 for each person who will be tending the thing)
* credit card merchant accounts and credit card fees
* swipe fees for debit cards
* security system and/or monitoring
* landscaping
* building maintenance
* Pavement of the lot and paving maintenance and snow removal
* franchise fees (are there any for gas stations like there are restaurants)?
* Any local recurring business, licensing or inspection fees
* Accounting, book work, payroll and tax preparation fees

What else is there?

the second most important item is WATER

[Dan Hintz]

the second most important item is WATER

The two most important things at a gas station... gas, and electricity. Without the first, you have no product, and without the second, you have no way to get said product into consumer hands... er, vehicles. Everything beyond that is gravy.

[Andrew Pitonyak]

They use different additives for different destinations even if it does come from the same refinery. I was told by a driver (Marathon was written on the side of the trailer) that the Marathon station even had different additives than when he was delivering to off brand locations.

[Dan Hintz]

They use different additives for different destinations even if it does come from the same refinery. I was told by a driver (Marathon was written on the side of the trailer) that the Marathon station even had different additives than when he was delivering to off brand locations.

Additives are put in the tanker before it leaves the yard, but it is customer-assigned. That's not to say customer 'A' is getting short-changed compared to customer 'B', only that customer 'A' might request a specific formulation of additives. If you're not getting a specific additive, it's because your franchise is not requesting it, not because the oil company wishes to create "better" gas for someone else.

[ray hampton]

The two most important things at a gas station... gas, and electricity. Without the first, you have no product, and without the second, you have no way to get said product into consumer hands... er, vehicles. Everything beyond that is gravy.

Dan ask if he forgot anything and I said that he forgot water , his list included gas and electrity

[Jackson Phillips]

Think of it this way:

Wheat is currently ~$5.42/bushel. That's $0.09/lb. The cheapest, whitest bread you can buy (entirely bereft of nutrition) is about $1 per 24oz. loaf, or $0.67/lb. and some of that weight is water. Sure, there's a bit of yeast, salt, and high fructose corn syrup in there, but those things are negligible and are bulk international commodities themselves.

$0.67/0.09= 7.4.

WTI crude is currently $98.42/barrel. That's $2.34/gallon. Retail gasoline is around $3.60/gallon right now.

$3.60/2.34= 1.5

I've worked for two oil exploration companies and Archer Daniels Midland (the biggest wheat miller in the world), and I can tell you with utter confidence the process of getting a gallon of crude oil out of the ground and getting it to the end consumer as a gallon of gasoline is exponentially more technologically challenging, capital intensive, and risky than growing a pound of wheat and getting it to the end consumer as a loaf of bread.

People can't live without food any more than they can gasoline. If the companies involved in the petroleum supply chain making a profit are so bad, then there's a whole lot of boogeymen waiting to be discovered hiding in a capitalist closet somewhere.

[David Weaver]

I've worked for two oil exploration companies and Archer Daniels Midland (the biggest wheat miller in the world), and I can tell you with utter confidence the process of getting a gallon of crude oil out of the ground and getting it to the end consumer as a gallon of gasoline is exponentially more technologically challenging, capital intensive, and risky than growing a pound of wheat and getting it to the end consumer as a loaf of bread.

That is *exactly* what I was referring to when I said I'd complain about it when I thought I could make it and distribute it more cheaply. There's not much low hanging fruit out there, and what comes out doesn't look like the stuff that gets shot on the ground in the beverly hillbillies opening theme. Around here, it looks like water with a little bit of oil in it.

[Rich Engelhardt]

I'm not at all against them making a profit - - what galls me to no end though is all the lies and half truths!

On one hand, they cry about slim profit margins and claim the profit is only a few pennies a gallon.
Then you see the price fluctuations and just shake your head.

BP, on one corner of an intersection will stick up a price of $3.79 a gallon. Sheets on the opposite corner will post a price of $3.39 a gallon. Circle K down the street will post a price of $3.59 a gallon.
An hour later, each one is $3.59 a gallon.
Then, two days later each one is at $3.79 a gallon.

Meanwhile, a couple more miles away, the Get Go station is at $3.22 a gallon!

If - and it's a huge if - it's true there only pennies of profit on a gallon of gas, then how in the world can the prices fluctuate by dimes and not pennies?

[Doug W Swanson]

I worked at an Ashland Refinery a few years ago. I was always dumbfounded that the gas station 1/4 mile from the refinery (and owned by the refinery) was always the most expensive gas around. It was consistently 10-20 cents higher than any other gas station on my 22 mile commute....

The other thing that I find interesting: Here in the Twin Cities, gas goes up very fast but it takes weeks for it to fall. It's not uncommon to see a 20-30 cent price hike but price drops are only a nickel.

And when comparing prices on-line, other cities like Chicago, Phoenix, LA, etc their prices are more stable. The Twin Cities chart looks like the Himalaya's but other cities look like a nice sandy beach....

[Pat Barry]

Gas prices are set by the market leader - around here its usually SA. SA buys the most gas and therefore they see the prices from the refinery more quickly than everyone else. The independents and small operations HAVE TO do what SA does, at least within a penny or two or they will be out of business very quickly. Sometimes you see one of them trying to undercut SA by a penny or two but it is usually very short-lived -the reason, they have a very low margin, they don't make much money from the gas sales and they need to be inline with SA or go out of business. If the price goes up all they can do is hope that it does so when they have a full tank themselves so they can reap a temporary increase in profit. When the price drops they can hope that they have a nearly empty tank so they can fill up with low priced gas. This isn't rocket science. The stations themselves are scraping by. Ever notice how many are out of business and converted to a Caribou Coffee location, a convenience store, or sitting empty? The profits are being made at the corporate level.

There are exception - a gas station in proximity to a car rental return at an airport for example, or in a downtown city location, or sometimes one off by themselves in the middle of no-where. Places where people are forced to pay extra due to circumstances

[Jackson Phillips]

I'm not at all against them making a profit - - what galls me to no end though is all the lies and half truths!

On one hand, they cry about slim profit margins and claim the profit is only a few pennies a gallon.
Then you see the price fluctuations and just shake your head.

BP, on one corner of an intersection will stick up a price of $3.79 a gallon. Sheets on the opposite corner will post a price of $3.39 a gallon. Circle K down the street will post a price of $3.59 a gallon.
An hour later, each one is $3.59 a gallon.
Then, two days later each one is at $3.79 a gallon.

Meanwhile, a couple more miles away, the Get Go station is at $3.22 a gallon!

If - and it's a huge if - it's true there only pennies of profit on a gallon of gas, then how in the world can the prices fluctuate by dimes and not pennies?

There's a number of factors that can be at play:

Is the station corporate, franchise, or independent?
If they're corporate, are they near enough to a company owned refinery and/or fuel distribution network to cut out one or both of those middle men?
If not, do they buy their fuel on contract?
If not, do they hedge futures contracts? If they do, are they seasonally managed? Short term (3-12 months), medium term (12-60 months), or long term (60 months-20 years)?
Are their futures derivatives or for delivery?
If they're franchise, do their overseers have binding guidelines on pricing?
Is it a convenience store or a service station? If it's the former, they may actually be pricing the fuel at a loss of up to 15 cents per gallon to draw people in to buy big gulps and doughnuts, things which routinely have profit margins of 300-500%.

Of course there are places that price according to location. Someone mentioned a station on a remote stretch of highway that priced much higher than a place a bit into the town. I personally consider that to be unethical, but it's not illegal. Making it so would require a medicine worse than the illness.

But sometimes they do so because people want them to. If they didn't, they wouldn't shop there. I was in a large city one time and pulled off a 4 lane parkway into a gas station. I looked across the road and saw another station had prices 26 cents higher per gallon. I asked the clerk inside why it was packed and hardly anybody was filling up where I was. She looked at me funny and replied, "'Cause this is the ghetto. White folks don't stop here." I grew up just outside a town of 400 people; little did I know.

If there were monopolies jacking up prices artificially because people don't have alternatives, that'd be one thing. But the world's largest oil company in the private sector, Exxon-Mobil, only has around ~3% of global crude production. ConocoPhillips is the largest refiner in the United States with 12% of capacity, while Valero is the largest private sector refiner in the world with a bit less than 4% of global capacity. Compare those figures with makers of autos, cell phones, computer chips, tennis shoes, etc. and they are dwarfed in terms of their miniscule percentages of overall market share in their respective industries.


That is *exactly* what I was referring to when I said I'd complain about it when I thought I could make it and distribute it more cheaply. There's not much low hanging fruit out there, and what comes out doesn't look like the stuff that gets shot on the ground in the beverly hillbillies opening theme. Around here, it looks like water with a little bit of oil in it.

I worked with a guy that bought a lease off another company that was going to abandon it. It had two producing wells and a disposal well. The first producer made 20 barrels of oil per day out of 2,000 barrels of fluid. The second made 5 barrels of oil out of 1,500 barrels of fluid. He described them as, "Nice little wells. Keeps me with some pocket money." :D

[David Weaver]

that's pretty good, I'd like to have a couple of wells making me 25 barrels a day! I wonder how much buying the lease cost him.

Our PBS here had a special on a guy north of me in the woods who had an old setup of producing wells going, and I guess he's been running them for decades and decades - maybe he rotates, not sure, but his setup was as old as he is, I'd imagine. He said he gets 3 to 4 barrels a day in general, and his setup requires a lot of tending/walking to check and work it. There must've been a lot of lean years for him. He was checking the quality of what was coming out of the ground by tasting it. I don't know if that's common.

[Jackson Phillips]

If I remember right, I think he got the lease for a couple thousand dollars. But that was back in the mid 90s when oil was $10 a barrel. It sounds like an amazing deal now, but the wells don't produce enough natural gas to run their own pumping units, so the pumpjacks have to have electric motors. The electric bill used to run $5000-6000 per month. :eek: So after paying royalties to the landowner and maintenance, he was only making a couple hundred bucks a month back then. Now I imagine they're quite the little money makers.

Your local guy is of a passing breed. Most people now don't want to do the several hours of hard manual labor (and I mean hard) seven days a week, 365 days a year that a group of wells take and the younger operators who have graduated with MBAs rather than geology or engineering degrees don't want to pay for the labor. Automated systems just aren't the same; they can keep a piece of equipment from self-destructing when something goes wrong, but can't keep it running. In general wells spend a lot more time down now than they used to. To get optimal production, they have to run constantly year in, year out. Not doing so creates uneven pressure gradients that can cause all sorts of problems. Also, the first thing out of a rock formation is the water. When a well goes down it only takes a few days, or even just a few hours, for it to water out if there's quite a bit of water in the formation. Then it takes several days to several weeks to get the oil cut back.

Tasting the water can tell you a couple things. First, if it's not as salty as it should be, then there's a hole in the casing somewhere and you're pulling in and pumping out a lot of fresh, shallow groundwater that's diluting what should be going into the well bore (and possibly pushing oil and saltwater into the fresh water table). The second thing it can tell you is if you're pumping the well too hard. If there's an increase in the amount of mineral in the water (usually lime, gypsum, or iron), you're drawing a vacuum on the producing formation. That draws fine particulates through the perforations in the casing, possibly plugging them up (meaning a very expensive workover job pumping acid down the hole to break up the deposits), or worse, collapsing the formation around the well bore (ruining the well permanently). It's not nearly as common as it used to be. Most people wouldn't realize it, but I'd bet that guy is an artist at what he does.

[David Weaver]

It's hard to tell from PBS, though they try to get the reports factual, they like to focus on the people and make everything seem like art leaving it a bit cloudy about how much of a genius and how innovative a lot of those types of guys are. The guy was dirty, and he said he had interest in getting people to work for him, but nobody sticks around (probably because he couldn't afford to pay anyone else to do the kind of work he did for the kind of pay he was getting). I recall a lot of hard steel lines set up to transfer power from one place to another. We only have gas wells in this area, so none of it looked familiar to me other than it was what my father would've called "a bunch of contraptions" and what was coming up out of it looked like water and not oil.

I hope the guy was around long enough to make a few bucks, it was a while ago I saw that special.

[Kev Williams]

pop quiz:

Why is it that no matter what the price of gas is, the difference in price between octanes is always around 10 cents?

Back in 2008 when some (I digress) shot gas up to $4.30 a gallon, mid-grade was $4.40, and premium was $4.55...

A little later in 2008 when gas shot gas back down to 98c a gallon (it got that low here), mid grade was $1.08, premium was $1.18...

Today, I can get regular at $3.48, midgrade at $3.58, and premium at $3.71... The higher gas goes, the cheaper premium gets (by ratio anyway)

Does it really only cost $10 a gallon for each 2-steps in octane?

[Kent A Bathurst]

The three stations a half mile from me is selling 87 octane for $3.55 a gallon.
Meanwhile, the Get Go station that's 4 miles away is selling 87 octane for $3.19 a gallon when I swipe my "loyalty" (yeah right! ) card and get a $.03 a gallon discount.


You Get-Go is looking for foot-traffic volume in the store. And volume at the pump. Big margins in the store. Also - at the pump it is an issue of variable v. fixed costs.

The infrastructure is a fixed cost - concrete, computers, pumps, etc. The marginal cost of the next gallon sold is a different duck. They can structure their bs model to have the store side carry the weight of the entire physical plant, and then the pricing at the pump becomes a very thin margin deal - designed to sell more fountain drinks, Marlboros, and beef jerky.


OTOH - within 1/2 mile of me are 2 gas stations on Peachtree Street. Yes - THAT Peachtree street, in Atlanta. No other gas station on that road for many miles in either direction - I bet at least 5 miles either way. Their prices are competitive with each other.

However, off Peachtree, 4 - 5 miles away, are 3 stations staring at each other across an intersection. Their prices are a penny or so different, and all are 25 cents less - maybe more - than the 2 on Peachtree Street.

Rent on Peachtree is probably staggering. There are no other stations nearby. Gonna run 5 miles for 10 - 15 gallons cheaper? Many of us would. Many people are in a rush and don't.

Real estate rules 1 through 3: Locaiton. Location. Location.

[Jackson Phillips]

I'm not familiar enough with refineries to give you a definitive answer, but I can give you a weird anecdotal one in my area. A number of years ago a couple refineries around where I live developed a perpetual surplus of high octane fuel. It used to be priced at 30-40 cents over 85-87, but with almost all car makers moving away from it, they were producing too much and due to their setups had a lower limit on how much they could reduce output. So the price dropped and dropped until it ended up being 10-20 cents cheaper than regular. People started filling up their cars that were specifically engineered by the auto makers for regular with premium. Uber expensive maintenance arises, frivolous lawsuits ensue, and bam - it ends up 10-20 cents more expensive again.

I'm not sure what the current situation is with getting the octane rating correct in blends. I would think it would be a lot easier now though with the amount of ethanol that can be mixed, given it's 113 octane, but that's just an uneducated guess.

[Dan Hintz]

People started filling up their cars that were specifically engineered by the auto makers for regular with premium. Uber expensive maintenance arises, frivolous lawsuits ensue, and bam - it ends up 10-20 cents more expensive again.

I'm not sure what the current situation is with getting the octane rating correct in blends. I would think it would be a lot easier now though with the amount of ethanol that can be mixed, given it's 113 octane, but that's just an uneducated guess.

A car designed for regular should have zero problems with premium gas... I cannot fathom how using premium (which is only a few octane higher than regular) would cause issues.

Now, if you're talking about the 113 octane as "premium", then yes, race gas has the potential to cause issues... but I wouldn't call race gas "premium".

[Curt Harms]

A car designed for regular should have zero problems with premium gas... I cannot fathom how using premium (which is only a few octane higher than regular) would cause issues.

Now, if you're talking about the 113 octane as "premium", then yes, race gas has the potential to cause issues... but I wouldn't call race gas "premium".

I read it as Jackson saying that ethanol is 113 octane. I don't know that for a fact but I believe that piston engines burning ethanol can run at higher compression without 'pinging'. There was interest in this in the '70s when prices and supplies of petroleum were unstable but then petroleum prices dropped and interest in optimizing engines for ethanol dropped too.

[Jackson Phillips]

You should have been on legal teams of the companies selling the high octane fuel as premium. :D It wasn't 113, but around 100 +/- a couple.

[Kev Williams]

Higher octane gas vs low octane is harder to ignite, and burns slower, which is why it prevents pinging. Because high octane fuel harder to ignite and burns slower, it's less efficient, which equates to less power and gas mileage for a given amount of fuel. This is about the only 'detrimental' effect of using premium if you don't need to. High compression/HP engines (turbocharged for example) can obtain substantially more power using premium, which more than overcomes any negatives. But for typical commuting use, paying for premium is likely a waste of money.

Engines can run great on pure alcohol with substantial modifications, but even so, you can't start an engine on pure alcohol.

[Dan Hintz]

High octane is the only thing you should be running for high-compression engines, too. My old S2000 was a 13:1 compression ratio (I think the Japanese version was 13.7:1), and while it would run on regular, the timing was retarded to prevent premature detonation (read, loss of HP). On race gas, man that thing would fly!

[Brian Elfert]

Gas stations in Iowa were selling mid grade premium gas for less money than regular 87 octane gas because the mid grade premium had ethanol and regular gas is just gasoline. I don't know if that has changed in the past few years.

[Art Mann]

Where I live, it is difficult to find gasoline that hasn't been diluted with alcohol and the product is generally $0.20 or so more expensive. That is due to government policy rather than market forces.

[David Cramer]

The oil industry does not set prices at local stations. Also, 11% is a tiny markup compared to many things you buy without giving it a secon thought.. I would not be surprised to find that tool stores mark up their products 40% or more. Caskets are often marked up 300% or more as your punishment for dying.




I worked for a Home Center. Black & Decker, Makita, etc...make the bulk of the profit. A 14.4V DeWalt drill was sold for $221 around the year 2000. The store itself, Builder's Square, paid $207 making a profit of $14. I know this for a fact because I worked there and could actually see the store's cost on the computer for each and every item in the store. Tool stores don't mark up their products 40% or more.

Now, in 2014, the profit isn't much better, but the volume of drills that they sell is more, a lot more.

For what it's worth Art, I used to think the same thing, until I had a short stint there 15 years ago.

Another example: Costco had a pair of Calvin Klein jeans that they bought for about $22 (it may have been $24) and sold each one for a $1 profit. How could they do that?

They sold over 20 million pairs of those jeans in their many stores throughout the world, making a very good profit on the sheer volume of their sales. I got that directly from a Costco employee while we discussed their store policy of no more than a 15% mark-up on everything sold in their stores (there were 2 or 3 exceptions with jewelry being one of them). A tv that they sell for $400 has a maximum profit of $60 (15%) that Costco makes, but it's usually less. The volume that they sell is huge.

We buy their gas and save 4% at the pump every time that we use it. Every February we get a check of about $250 back ($265 last year). Their price is already lower than any gas station around, and then with an additional 4% more off for our business membership, we can't beat it...even though gas is still toooooo high, in my humble opinion.

Sorry, I know my post wasn't mainly about gas, but I just thought it was worth pointing out.

[Rich Engelhardt]

Small world...
I too worked at Builder's Square back in the mid 1980's.

Horrible place to work.

[Brian Elfert]

Deleted. Posted to wrong thread.

[David Weaver]

I worked for a Home Center. Black & Decker, Makita, etc...make the bulk of the profit. A 14.4V DeWalt drill was sold for $221 around the year 2000. The store itself, Builder's Square, paid $207 making a profit of $14. I know this for a fact because I worked there and could actually see the store's cost on the computer for each and every item in the store. Tool stores don't mark up their products 40% or more.

Now, in 2014, the profit isn't much better, but the volume of drills that they sell is more, a lot more.

For what it's worth Art, I used to think the same thing, until I had a short stint there 15 years ago.

Another example: Costco had a pair of Calvin Klein jeans that they bought for about $22 (it may have been $24) and sold each one for a $1 profit. How could they do that?

They sold over 20 million pairs of those jeans in their many stores throughout the world, making a very good profit on the sheer volume of their sales. I got that directly from a Costco employee while we discussed their store policy of no more than a 15% mark-up on everything sold in their stores (there were 2 or 3 exceptions with jewelry being one of them). A tv that they sell for $400 has a maximum profit of $60 (15%) that Costco makes, but it's usually less. The volume that they sell is huge.

We buy their gas and save 4% at the pump every time that we use it. Every February we get a check of about $250 back ($265 last year). Their price is already lower than any gas station around, and then with an additional 4% more off for our business membership, we can't beat it...even though gas is still toooooo high, in my humble opinion.

Sorry, I know my post wasn't mainly about gas, but I just thought it was worth pointing out.

Costco is a different model, though. The last time I heard a description of their cost structure, they said they set the prices on the goods to cover their expenses, and rely on the membership fees for profit.

Hartville tool used to run a cost+10% summer sale each year, which really gave you an idea of what things cost them. The few things I ordered from the US barely changed in price - maybe 10% on average. The import accessory stuff cost about a quarter to a third of what it cost at their regular catalog prices (some far east lumber rack kits, etc).

It's not hard to figure out why all of the home centers want to take away legitimate tools and fill the racks with garbage accessories from china, and then play goofy games with coupons while jacking up the remaining legitimate tools.

[Art Mann]

I worked for a Home Center. Black & Decker, Makita, etc...make the bulk of the profit. A 14.4V DeWalt drill was sold for $221 around the year 2000. The store itself, Builder's Square, paid $207 making a profit of $14. I know this for a fact because I worked there and could actually see the store's cost on the computer for each and every item in the store. Tool stores don't mark up their products 40% or more.

Now, in 2014, the profit isn't much better, but the volume of drills that they sell is more, a lot more.

For what it's worth Art, I used to think the same thing, until I had a short stint there 15 years ago.

Another example: Costco had a pair of Calvin Klein jeans that they bought for about $22 (it may have been $24) and sold each one for a $1 profit. How could they do that?

They sold over 20 million pairs of those jeans in their many stores throughout the world, making a very good profit on the sheer volume of their sales. I got that directly from a Costco employee while we discussed their store policy of no more than a 15% mark-up on everything sold in their stores (there were 2 or 3 exceptions with jewelry being one of them). A tv that they sell for $400 has a maximum profit of $60 (15%) that Costco makes, but it's usually less. The volume that they sell is huge.

We buy their gas and save 4% at the pump every time that we use it. Every February we get a check of about $250 back ($265 last year). Their price is already lower than any gas station around, and then with an additional 4% more off for our business membership, we can't beat it...even though gas is still toooooo high, in my humble opinion.

Sorry, I know my post wasn't mainly about gas, but I just thought it was worth pointing out.

Big box stores and Costco are not what I would call tool stores. The kinds of places I am referring to are Woodcraft, Rockler, Highland Hardware and similar and the products I am referring to are table saws, jointers and other similar stationary equipment.

[Jessica Pierce-LaRose]

However, off Peachtree, 4 - 5 miles away, are 3 stations staring at each other across an intersection. Their prices are a penny or so different, and all are 25 cents less - maybe more - than the 2 on Peachtree Street.

Rent on Peachtree is probably staggering. There are no other stations nearby. Gonna run 5 miles for 10 - 15 gallons cheaper? Many of us would. Many people are in a rush and don't.


Wow! We often see the price difference between places in high-rent areas, or busy or convenient places on main thoroughfares or interstate exits and places a bit further out, but around here, I don't remember ever seeing it 25 cents cheaper!

If I'm buying 10 gallons of gas, 25 cents cheaper saves me two and a half bucks. 5 miles probably costs me 70 or 75 cents depending on how much the fuel in my tank cost me, but I get about 26 MPG. Depending on other factors then, that extra time might be worth it. Certainly for 25 cents cheaper, it could be, especially if I was driving that way anyway, but the savings goes down if I'm not buying a full tank. If I was getting considerably less MPG, it might be less appealing - if I was running a less fuel-efficient car that got, say, 14 MPG, and that 5 miles costs me $1.30, it changes the price saved, but of course, it depends on how much fuel I'm buying.

I get a feeling, though, that I'm probably an out-lier here, as I have a relatively small tank. If you're putting 25 gallons in a big truck tank, the math changes.

I used to have a coworker that would drive way out of her way to save 2 cents on gas - that I always found ridiculous, especially since she was only putting 7 or 8 gallons in at a time.

It made me think of this comic:

http://xkcd.com/951/

The roll-over text on that alludes to it - on a lot of cars and situations, you can actually spend more getting to the cheaper gas than you save on it. But man, 25 cents throws that out the window.

I just find this silly math stuff fun - there's actually a website here:

http://www.bankrate.com/calculators/auto/gas-price-calculator.aspx

That helps you calculate the actual savings (or cost penalty) of hunting for cheaper gas. It assumes that you're putting in a full tank (or whatever amount you're punching into the "capacity of your cars gas tank" field.) Playing around with it is neat, to see how different things change the savings.

[Brian Elfert]

I used to drive the 16 miles round trip to a station that sold diesel for something like 20 cents a gallon less. It saved me money even with the cost of driving the round trip. Their diesel also wasn't blended in the winter and used an additive instead so I got better MPG from their diesel.

[Dan Hintz]

Don't forget the extra wear and tear on your car... oil, transmission, brakes/rotors, tire wear, etc. Doesn't seem like a whole lot, but those pennies can add up quickly, and that $0.20/gallon savings starts to dip a little lower.

[David Cramer]

Big box stores and Costco are not what I would call tool stores. The kinds of places I am referring to are Woodcraft, Rockler, Highland Hardware and similar and the products I am referring to are table saws, jointers and other similar stationary equipment.


Sorry Art, my bad. I totally misunderstood.

As for Woodcraft, I truly don't know but I'd be surprised if it was anywhere near 40% for the big tools. But...I may be all wet as I've never worked there and am only guessing.

Respectfully,

David