Editorial
Front Page - Friday, April 23, 2010
Many factors affect the price of gas at the pump, insiders say
David Laprad
Industry insiders say the cost of gas could climb as high as $3.25 per gallon this summer. But don’t blame the retailers, they say, as a myriad of factors affect what consumers have to pay at the pump.
- David Laprad
Keeping track of the price of gas is a lot like watching a tennis match: First it goes one way, then it goes the other in a never-ending back-and-forth bout. However, the winner isn’t always apparent, although consumers have their ideas; from retailers, to the president, to Middle Eastern oil sheiks. There are plenty of suspects.
While it might sting to see a photo of an oil sheik showing off his gold-plated Rolls Royce, it’s not as simple as that, Jessica Brady, manager of public relations at the AAA, says. Rather, multiple factors affect how much motorists have to shell out at the pump.
“There’s basic supply and demand, which is the amount of crude oil available and how much fuel consumers are using on a day to day basis,” she says via phone from her office in Tampa, Fla. “For example, the U.S. supply of crude oil has steadily increased over the last ten weeks, and while demand has gone up, it’s not growing at a rapid rate. That’s driven the price of crude oil down.”
The strength of the U.S. dollar compared to other currencies, such as the euro and the yen, is another factor. Crude oil is traded in U.S. currency, so when the U.S. dollar grows strong, the price of crude oil lowers. Conversely, when the U.S. dollar weakens, investors typically pour their money into crude oil, Brady says.
A variety of other factors can drive up the price of gas, including hurricanes that damage oil refineries, emerging economies, such as India’s, and political instability. “Investors are watching Iran closely,” Brady says of the country, which U.S. sources at the recent Nuclear Security Summit in Washington, D.C. said could produce a nuclear weapon within a year. “If some sort of war were to break out over there, we’d see crude oil exceed $100 a barrel. Retail prices would follow.”
These factors fuel investor speculation about the supply of crude oil and the demand for it, Brady says. “Investors are currently looking at every piece of economic data they can find to support their belief that the demand for gas is going to increase. A few weeks ago, one report said fuel consumption rose from one year to the next, while another said the U.S. GDP increased more than expected. So investors are saying demand is going to rise because the economy is improving. However, there’s a lot of guesswork involved.”
Regardless, when investors say the demand for crude is going to increase, prices go up, and when it becomes apparent demand is flat, prices go back down.
Don’t blame the retailer
Despite the reality of global machinations that work to establish the cost of crude oil, many consumers believe gas retailers are simply raising their prices to increase their profits. This couldn’t be farther from the truth, says J.B. Underwood, owner of Collegedale Exxon. In actuality, most places that sell fuel only break even on it and survive by selling other products and services.
“If anyone thinks we make a living on gasoline, they’re mistaken,” he says. “I’ve got four full-time mechanics. We sell tires, do repairs, change oil and do tow work. If I had to make a living on gasoline, I’d have been out of business 30 years ago.”
Underwood opened his service station in 1974, when fuel cost 55 cents a gallon and Collegedale was a sleepy little hamlet. There’s considerably more traffic on Apison Pike today, and the sign outside his station quotes a significantly higher price for a gallon of unleaded, but he still isn’t turning a profit on gas.
“The only people making money on gasoline are the credit card companies,” he says. “They take a percentage of each sale, normally two-and-a-half percent, so they get anywhere from 4 to 8 cents a gallon.”
If a driver doesn’t like what a station is charging for gas, he might get a lower price elsewhere, as several things can impact the cost of fuel from retailer to retailer.
“A station located along a highway might have higher prices because of convenience, while stations farther in will have lower prices,” Brady says. “Stations located in remote areas, where there’s not much competition, tend to have higher prices, too. Different city, county and state taxes also come into play.”
Stations in Chattanooga, however, vary as much as 10 cents a gallon. Underwood attributes this, in part, to slight price variations at the approximately three-dozen gas wholesalers in the area. He also says the use at some retailers of a less expensive fuel results in lower prices.
“Look on the pump and see if they’re selling an ethanol blend. It’s a cheaper product,” he says. “You don’t get as many miles out of it, but retailers can sell it for less because it’s a blend.
Underwood says he sells only virgin Exxon fuel.
Brady’s discussion of demand is timely given that summer, when people tend to travel more, is approaching. However, increased demand isn’t the only reason gas prices jump along with the temperature outside; consumers are actually purchasing a more expensive product.
“Throughout the year, we use two different fuel blends,” Brady says. “During the summer months, refineries switch to their summer blend, which is more costly to produce due to required additives related to emissions.”
A penny saved...
Brady says the cost of gas will likely climb to as high as $3.25 per gallon this summer. To save money, she recommends keeping an eye on the price of crude oil and purchasing gas before the price of crude oil closes on Friday afternoons. “If the price of crude oil is trending upward, then you might be better off getting your gas Thursday night or Friday morning. If it’s going down, you might want to wait.”
No matter how much gas costs, Brady says fuel efficiency is key to saving money. “Avoid leaving your vehicle in idle, as it wastes fuel, and remove excess weight from your vehicle,” she says. “One hundred pounds of extra weight can reduce your gas mileage by as much as two percent.”
Excess braking can also increase the amount of fuel a vehicle consumes. “When you have to slow down, it’s better to decelerate by coasting and then coming to a slow stop as opposed to gunning your car and then slamming on the brakes,” Brady says.
Brady also advises against aggressive driving and rapid acceleration, which she says can burn up to 33 percent more fuel on the highway and five percent in the city.
Properly inflated tires and a clean fuel injector will also reduce the amount of money a driver spends at the pump, Brady says.
In a tight economy, consumers are always looking for ways to save money. They’re also looking for people to
blame for higher prices. But when the rubber meets the road, the ones who catch the most flak are among the least guilty. “Don’t blame the retailers,” Brady says. “It’s not just one thing. Many different factors come into play.”
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