Do station operators get advice on how to price their fuel every time oil prices rise?

Does their supplier call them and tell them how much the base price of their stock will rise daily or several times a day?

Do they tend to adjust their selling price immediately in response to oil prices?

I know state and local taxes make up a big hit on the price of fuel, but the whole damn thing just seems to be a little too slick in my mind.

A local station here adjusted their prices upward three times in one 24 hour period.

RMD

I'm curious about this too. Is there a website they all use to fix the prices? Do they get a mass group text message? Inquiring minds want to know!

It seems to me they just look at what their competitors are charging on their way into work that day, and set their prices accordingly.

On a more serious note, why wouldn't they just do what other retail merchants do, set selling prices based on what they paid their wholesaler, with adjustments made for business realities (e.g. adjusting the price for slower-moving items)?

I think they're setting their prices according to replacement cost.

Not what they paid for filling their tanks yesterday, but what they'll pay to fill them tomorrow.

That said, I'd bet they use the process to get over on us.

I know one thing, when something happens to raise prices they do it that day. Once the crisis is over it takes weeks for the prices to trickle back down.

My stepfather worked for Shell Oil, fuel delivery to the stations. I'll ask him. He did have some crazy stories of some of the gas station owners being behind on credit back in the 70s and 80s. He would have to go down to the gas stations at night sometimes and collect for a truckload of fuel delivery in cash!

Very few gas stations are owned by the name on the sign (e.g. my employer owns zero gas stations but has franchisees). Most stations are franchises owned by "jobbers" who have multiple gas stations. Some gas stations are sole proprietors.

The gasoline is fungible when it leaves the refinery and is transported by pipeline, ship, and/or barge to the distribution terminal. At the distribution terminal, at its loading rack the gasoline is loaded onto the tanker trunk everyone sees at gas stations. During loading, either a branded proprietary additive or generic (i.e. minimum gov't spec) additive is blended with the gasoline. The additive package is the differentiator (e.g. Top Tier is what I purchase).

Pricing is easier to describe after that a high level overview of logistics and differences in gasoline additives. There are several ways for stations to set prices:

the jobber's corporate office tells the station what the price is

the station pulls up the rack price at the distribution terminal and sees what it'll cost to replace every drop of gasoline sold that day.

more sophisticated proprietary algorithm that is risk based on rack price at distribution terminal and what it'll cost to replace every gallon tomorrow, next week, or two weeks from now.

Keep in mind, that the supermajority of gas stations only hope to make enough off gasoline sales to pay the electric bill as they are only making a penny or two per gallon. The real profit center is the convenience store and the mark-up on bottled water, soda, chips, etc. is insane. For example, I can buy a 24-pack of water at Walmart for the price of 2 bottles of water at most gas station convenience stores.

quote:

Originally posted by tatortodd:
Very few gas stations are owned by the name on the sign (e.g. my employer owns zero gas stations but has franchisees).

Thanks for the explanation. That helps.

RMD

The largest price component of gasoline is crude oil. Long gone are the days where crude oil field are near refineries so the logistics is quite long. Additionally, the logistics is quite spread out from the refinery (i.e. over half is in Gulf Coast) to the distribution terminal to the gas station.

Gas Buddy changed my favorite easy to use chart that overlaid gasoline prices with crude oil prices. I managed to get Yahoo Finance to do the same, but couldn't change the colors so they stood out more.


The prices above are for crude oil in Cushing, OK, and gasoline in New York Harbor, NY. They do not include logistics from there to the gas station, they do not include state and federal gasoline taxes, they do not contain a penny or two profit during logistics, and they do not contain a penny or two profit for the gas station. The important takeaway from the chart is that gasoline is currently moving in lock step with crude oil prices.

I guess I'll don my flame suite because there is a very vocal subset of Sigforumites who are too angry to listen to facts and an even smaller subset that data and charts pisses them off.

quote:

Originally posted by rduckwor:

quote:

Originally posted by tatortodd:
Very few gas stations are owned by the name on the sign (e.g. my employer owns zero gas stations but has franchisees).

Thanks for the explanation. That helps.

RMD

You're welcome

quote:

There are several ways for stations to set prices:

I've seen the clerk at one gas station using a pair of binoculars to look at the sign at the QT down the street, and then adjust his prices to match QT.

Not quite as sophisticated as the methods described by tatortodd.

I worked for Diamond Shamrock and Valero Energy for 20 years, pipeline, terminals, and refineries.

tatortodd gives a very good description above.

Many large companies have trading floors for the purchase of crude, sale of refined product, and pipelines if they are using and/or operating common carrier pipelines.

quote:

tatortodd gives a very good description above.

I'm always amazed at tatortodd's knowledge and ability to make it understandable.

My daughter is a field mechanical engineer in this business as well.

^^^ Yep, always appreciate tatertodd's insights into the oil and gas business.

quote:

Originally posted by vinnybass:
I think they're setting their prices according to replacement cost.

Not what they paid for filling their tanks yesterday, but what they'll pay to fill them tomorrow.

That said, I'd bet they use the process to get over on us.

This is what I was told years ago.

Oil goes up, prices at the pump immediately go up based on “estimated replacement” cost.

Of course when prices go down, they seem much slower to respond and keep prices elevated based on what the wholsaie price was for what is currently in the tank.

The seem to work it whichever way works best to line their pockets.

Glad I get my gas at Costco which runs about .35 to .50 less a gallon than other area stations and using my Costco VISA puts a 5% rebate on top, so another .15 to .20 cents off depending on current price.

I worked at a Mobil gas station in NJ from Nov 1989 - Jan 1995, on and off. The owner was a franchisee, and I'm still friends with him to this day. This was even before the Exxon-Mobil merger. Back then, he set the price. We were on a busy highway and we got deliveries about every 2 days.

He set the price and had sole control over how much to charge. We'd "stick the tanks" every night. Basically a 12' long ruler we'd drop into the tank to get a reading of how much gas was in each of the 3 tanks we had. He then had a chart for how much gasoline was in the tank. In the morning he's figure out how much gas to order. He did it all over a touch tone phone.

I am 100% positive he set the prices he charged.

It has been a couple decades, but my uncle had a gas staton when I was a kid and the gas supplier (I think it was Fina) would call and tell him what to price it at.

Back in the early 1970s my bil and I had a Texaco station that we leased from Texaco. Our price for gas was set by Texaco.
We would get a call telling us to raise or lower the price.

quote:

Originally posted by chellim1:
I've seen the clerk at one gas station using a pair of binoculars to look at the sign at the QT down the street, and then adjust his prices to match QT.

Ahh, the old binocular trick. It's even funnier if the two stations watch each other, don't realize it, and piss away hours of their day watching each other.

quote:

Originally posted by chellim1:
My daughter is a field mechanical engineer in this business as well.

Very cool. I began my career as a mechanical engineer supporting a region. During that time, a few distribution terminals fell in my region and was able to do some work on the loading rack, gasoline additization, etc. An electrical engineer about a dozen years older than me taught me the electrical and instrumentantion side of distribution terminals too which was pretty interesting (e.g. the grounding system so you don't set an 8000 gallon tanker on fire while filling it with gasoline at 500 gallons per minute).

quote:

Originally posted by gjgalligan:
Back in the early 1970s my bil and I had a Texaco station that we leased from Texaco. Our price for gas was set by Texaco.
We would get a call telling us to raise or lower the price.

This is what we did at BP Unbranded Fuels in the 2000's, too. The branded side of the house did the same. At the end of the workday we would get the next day's pricing from wherever/whoever and would spend the last hour of the day calling all our franchisees and let them know what to charge.

Back around 1980, my wife managed a gas station / convenience store (I don't remember the brand), in a suburb west of Chicago.

Every day, either she or an employee would drive around the area, checking competitors' pump prices.

The station owner would then set the price.