Q&A of the Day – Gas Price Cycling? What’s Behind the Recent Rise?

Before diving into the local nuiasances let’s first breakdown the big picture cost of what we’re paying for when we buy a gallon of gas. It's dynamic based on the variances in the cost of oil and refining at any given time. 

Episode Transcript

Speaker 1 (00:04):
Have a question or topic you want to have addressed.
Just ask. This is the Brian mud Show. Today's Q
and a gas price cycling, what's behind the recent rhynes?
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(00:26):
If you would love us, just go into the app,
make us your top pre set. While you're in there
and look for the little microphone button. See it, tap it.
You may lay down the message right there, maybe for
a future Q and A. In today's notice, This gas
price cycling has been going on for months here in PBC.
Gas was as low as two seventy five Sunday and
today prices are three twenty nine. Used to be able

(00:49):
to track gas prices by looking at oil prices, the
last several months have seen the roller coaster pricing greed.
Any thoughts thanks? Okay, so first award from troll be
Lundberg about what she is expecting to see from here.

Speaker 2 (01:03):
The price of oil has been quite stable compared to
previous times, and so if that does not change radically,
then we'll probably see a gentle slope downward in price.

Speaker 1 (01:16):
Okay, so yeah, that could be good news. And kind
of as you pointed out there, oil prices haven't been
terribly volatile, So why have we seen such variation and
gas prices, well, the yo yo effect in prices at
the pump, they do seem curious at times. Now, what
I can't speak to is what you're setting is prices
having risen from two seventy five to three twenty nine.

(01:38):
That's got to be like a specific situation. And by
the way, I have an idea if that is like
one gas station that you're referring to, probably where they're
getting their gas, what brand they are. I'll tell you
about that here in a second. But what I can
tell you is that we did see significant increases this week,
but the state wide average was only a difference top
to bottom. If you take a look last week to
this week top to bottom, the range was nineteen cents

(02:01):
week over week, and then within Palmache County's actually less
than that, it was eighteen cents top to bottom week
over week. Far from the fifty four cent variance that
you're referring to. So before diving into the local nuances,
I first want to break down the big picture costs
of what we're paying for when we buy a gallon
of gas, because it's dynamic based on the variances and

(02:24):
the cost of oil refining market conditions at any given time.
The most recent breakdown via the US Energy Information Administration
shows that fifty two percent of what you're paying for
at the pump is due to the cost of oil itself.
Seventeen percent right now is taxes, sixteen percent refining costs,

(02:47):
fifteen percent is distribution, retail marketing, and margin those three things.
So we tend to think of oil being the end
all be all when it comes to the cost of
what we pay at the pump. As you mentioned, you
know can usually track the price of oil, and that
tracks pretty well at gas prices, you know, shortly thereafter. However,
I mean, is it the biggest driver. Yes, it is,

(03:09):
but it's still only about half the equation, right, So
that is not the only thing to look at in
terms of determining factors. So one of the key variables
that's acted independent of oil prices, most recently is seasonality.
September fifteenth is the last day that the EPA mandates
this summer blend of fuel be used by gas stations,

(03:32):
and so as a result, refineries begin to be taken
offline in advance of that day to recalibrate and reformulate
to the winter blend of fuel. Now, that can at times,
based upon demand, lead to some supply shortages and higher
refining costs, but that really was taken to a different
level this year because complicating the transition a significant one

(03:57):
of the most important refineries in the country, a BP
refined in Indiana, was taken offline for an extended period
due to extensive weather induced flood damage. So that, coinciding
with other refineries that had already been taken offline for
the conversion of the fuel dead lead to some disruptions

(04:17):
that led to higher prices in specific situations on the
refining side. And that's why if I want to take
a stab, like if you're referencing the fifty four percent
variants and it's one gas station, I'm going to say
it's probably a depece station that you've seen that ad
So anyway, as for the price of the practice of cycling.

(04:37):
It is very much a thing. It's not uncommon for
certain gas station owners to reduce prices and an effort
to attract more customers. Often, when one gas station dips
in price, others that compete with that station will try
to remain competitive with that price. That can and often
does create a cycling effect that often plays out later
in the week and through the weekend. And on that note,

(04:58):
here's a related fun fact for you. On average, the
best time to buy gas during the week, when do
you think it is? And so I'd be curious to
see if you do better That Joel had this exactly
backwards exactly. It was remarkable, exactly backwards at his guests.
A mean, So, the best time to buy gas is

(05:21):
Monday morning. Monday morning. The worst days of the week
to buy gas are Wednesday and Thursday. And again this
isn't all the time and every week, but playing the averages,
that happens to be in Thursday, by the way, in particular,
typically is the worst day to buy gas. So there
you go. As for the potential greed factor, there is

(05:43):
so much competition in almost all situations that it's really
hard for a gas station to gounge and get away
with it while maintaining a healthy flow of customers. The
average net profit margin on a gallon of gas monitored
most recently has ranged from one cent per gallon to
three cents per gallon, so even that three cents per
gallon far from something that to greed. The key to
most gas station profits, not the gas, is actually what's

(06:04):
sold in convenience stores or car washes other accessories that
are at that service station, where margins average being above
thirty percent. So the need to drive traffic to stores
helps with price competitiveness on gas. At times during competitive cycling,
you even have some stations that might drop the price
of gas to break even or every now and then

(06:25):
even below their own costs, just to try to keep
customers coming to their locations to drive them into the stores.
So the good news is that with the winter blend
of fuel process underway, you will soon see some lower
prices for no other reason, just simply due to the
lower refining costs of the winter blend of fuel, which

(06:47):
averages being in the neighborhood about twelve cents cheaper per gallantry.
Fine