Here in the Midwest, we are experiencing a higher than normal spike in gas prices. The local news stations tell us it is due to several oil refineries closing down at the same time for maintenance.
Yet, this is not unusual – and over the past several years – we have grown accustomed to rising gas prices. And, I'm sure you've wondered, “what causes them to go up?“.
So, to answer that, I thought I would bug a nationally known gas retailer, Speedway based out of Ohio. They were kind enough to answer my inquiry about fluctuating gas prices.
The main causes for rising gas prices
Like many products in a market economy – gas prices tend to go up and down based on many different factors – but most notably due to supply and demand. While Speedway couldn't elaborate on their individual pricing policies and timing – they did cite three reasons that cause gas prices to go up (and I'm going to quote them verbatim here, from their email).
- Local competition. A primary factor that affects the fuel price at your Speedway location is local competition (any competitor’s store located within a 2 to 3-mile radius). Gasoline retailers are one of the few retail commodity marketers that prominently post the price outside on the street for all to see. If I post my fuel price where a local competitor sees it and notices everyone is coming to my store, what does he do? He lowers his price! I see his new price and lower my price to compete with him and the downward spiral begins. This can happen in a matter of weeks, days, or in some cases, hours.
- Cost. Another significant factor affecting the retail fuel price is the wholesale cost of the fuel. Just like gold or wheat, fuel is a commodity that is traded on the open futures/stock market. There are many things a trader considers when determining what to pay for fuel. These factors can include political situations in gasoline or crude oil-producing nations; worldwide supply and demand for fuel, and even the weather. Several of these factors recently have caused cost increases. At the end of one day, fuel could cost more than it did at the beginning of the day. Since many of our stores receive fuel deliveries on a daily basis, our costs can fluctuate daily. [Note: OPEC (Organization of Petroleum Exporting Nations) is also another large factor in the cost issue. They will cut supply OR increase it whenever they feel the need to by decreasing production.]
- Taxes. According to the Department of Energy, federal and state taxes currently average 23 percent of the cost of a gallon of gasoline. Taxes can vary widely between states. Additional local county and city taxes can have a significant impact on the price of gasoline.
Speedway also stated they need to make enough to run their stores – so will move the price enough so that they are making enough margin on gas sales.
How US gas prices compare to other parts of the world
While prices here in the US seem high (at the time) – they are generally lower than what other countries pay (sometimes even 3x lower). Here is a chart provided by Statistica on the world gas prices (updated January 2013).
So, it could be worse. A lot worse – relatively speaking.
What can you do to offset fluctuating gas prices?
Obviously you don't need to pay full price for gas. Here are a few things you can do (if you aren't already doing them) to save when the prices start to soar:
- Sign-up for your gas stations e-newsletter and deals/offers. A lot of times they will send you coupons for so many cents off per gallon of gasoline. A friend of mine at work takes advantage of a gas station chain's promotion where they double any competitors coupons on Tuesdays.
- Buy on Wednesdays. They tend to be the cheapest day to purchase gas.
- Get the gas retailers reward card or become a member. We purchase almost all of our gas at Costco – which is typically 10-20 cents cheaper than any in our area.
Are there any ways that you counter the effects of rising gas prices?
Looks like you got the standard BS on why gas prices rise. Tell me then why the price of crude goes down 5% the price of gas goes up 10%? We all need to stay home for a couple days and not buy any gas. That would get someone’s attention. We all complain but we keep buying the over priced gas. Stop buying it people and to hell with the commodity brokers who are lying theives.
What the… we’ve got the lowest prices outside of Mexico and a few, non-OECD oil-producers, and yet we complain so much about them!
American’s need something to complain about! ;)
Good post Aaron! I hate seeing the spike in prices, but I think it’s inevitable most times. I think one thing people do not realize is that gas stations make very little off of selling gas, which is part of the reason why so many of the other things they sell might be more expensive than normal.
The local grocery store (Fry’s) gives fuel points for grocery purchases. You can buy up to 35 gallons on one transaction using the points. We save the points and wait until both our vehicles are low on fuel then fill them up on the same transaction. (You will need a person to hold the nozzle while you swap vehicles.) We typically save about $17 with a .70 a gallon reduction and ~25 gallons for both vehicles.
I’ve been riding my bike to work lately. It’s a 13-mile round trip, so I get about 60 minutes of exercise and being outside. It’s pretty refreshing in the morning, too.
-Christian L. @ Smart Military Money
@Christian – That’s a great alternative to driving. Wish I could do that!
@Norm – Ha! Another great way to save at the pump! Though, I don’t think I’ve ever seen anyone holding pumps for your next vehicle! :)
@John – Thx – this is true. Probably similar to grocery stores in their margins.