Wednesday, January 24, 2007

Gas prices again

Ask, and ye shall receive.

I got two responses to my gas price blog entry that I shall post here. First, one reader provided a link to a website that gives the lowest prices in your area.

Next is this reply, which explains some about the effect that independent stations have on prices:


It works this way: The little guy -the retail dealer, Gurbinder or Akbar down at the Gas-n-Go - buys his gas from the oil company 8500 gallons at a time. That's what a tanker truck holds. When wholesale prices go up, he raises his price based on replacement cost. He has to replenish his tanks at some point. It may be 3 or 4 days before his next load, so his price changes daily. If he waited until his next load to raise the price, it would jump 20¢ in one day. The public balks at that. When wholesale prices drop, he stops using replacement cost. What if he has 15,000 gallons in the ground, some of it bought when prices were 20¢ higher? His profit margin is only about a nickel a gallon. He'd be selling it for less than he paid! So he charges based on what it cost him. That is why it goes up rapidly, and down slowly.

The "awl binness" is tough. The branded dealers are locked into a purchasing agreement with the oil company. The independants can buy from whoever. If there's a glut, the oil companies unload their product on the independants. They have only so much storage, there are full tankers already heading this way, and it has to go somewhere. I recall a time a few years ago when the local independant was selling gas for less than my boss could buy it from Shell! Now it's true that name-brand gas has better additives so it costs a bit more, but I doubt if the additives add 30¢ a gallon to the price. And don't forget, Visa charges about 3% to process transactions. At 2 bucks a gallon, Akbar is paying 6¢ a gallon so you can use plastic.


Thanks to those two for their responses. If other helpful info comes my way, I'll post that as well.

No comments: