Jul

20

Gas PumpOn my way to work I pass 12 gasoline stations, then in the evening I take a different route due to traffic flow and see 13 more. If I look down the street at intersections I can see five others. So each workday I see 25- 30 gasoline prices.

Gasoline is a standardized commodity that people will price shop. Yet the low end 7-11 and Walmart gas tends to be a loss leader, to get bodies in the door to buy soda fountain drinks, or smokes. The high end Shell stores seem to be priced for those wanting clean stores or to avoid the crowds and riff-raff.

It is well-known that as the prices go up, the stations all tend to cluster together. Over the last year and a half the range between high and low was 5- 10 cents while oil prices were rising. When oil prices were falling quickly, however, the range spread out to 30- 40 cents between high and low. Once they broke 30 cent the oil price took the recent dip. Now prices are in the 15- 20 cent spread range, and I take this as a sign of range bound prices for oil. However, this may just be one of those rare occasions that the trend is your friend as I have heard the Bostonian trend follower made some of his losses back in the oil markets.

Yet this has me wondering if bubbles to burst follow this pattern with variability in pricing. It has been said that many of the desert gated communities have yet to see their home prices fall, because the foreclosures are not happening in many of them.

It would seem that those in the know would sell inventory at a discounted price as demand shrinks and they expect it to shrink further.

Does end price variability signal a trend in the markets, or is this concurrent per chance?

Henry Gifford notes:

Counting the gasoline price spreads should take into account little-known regulations that vary from state to state.

For example, in New York State there has been a law for about 10 years which prohibits selling gasoline for a price less than one cent below "cost," on the excuse of protecting mom-and-pop gasoline stations from chains which use gasoline as a loss leader.

There are also laws prohibiting self-service pumps, with the excuse similar to the economic arguments in favor of breaking windows.


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2 Comments so far

  1. Vans on July 30, 2009 4:50 pm

    I used to think gasoline brands mattered. Then I did some research and found the same refineries distributing gas to multiple brands. And your context is interesting… but using price as a gauge between brands is not a good indicator because as you have mentioned there are different profit motives behind the establishments. Like stations next to the freeway or off the beaten path. For me I will continue to rely on the Big Box Membership site so affectionately known as Costco as they seem to always be within pennies of the lowest stations. Add to this a money back credit card and it's nearly always win/win. And my rig eats a lot of petro!

  2. Matt Azi on November 3, 2009 8:14 am

    I think price variability is more to do with location and competition, the more competition there is the likelihood that prices will be tighter.

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