Editorial...Grove's Gas Prices

Why Gasoline Prices Vary

Last week the price of gasoline in Grove was $2.85 at nearly all of Grove's stations. This week, it varies from $2.65 to $2.72. In Tulsa, by midweek, the pump price had dropped to $2.59 and still dropping. We wondered why, so we spoke with a Grove gasoline wholesaler on how the system works.

Wayne Gould, marketing manager of Arkansas Valley Petroleum east of Grove, explained that his company distributes all brands of gasoline except for Shell, at this time. Gasoline prices are determined by a variety of circumstances, before the product ever reaches the retail service station.

First are the New York Energy Traders who bid on oil futures, frequently upset by such things as potential hurricanes, wars, terrorist threats, oil company shutdowns, Alaska pipeline closings, and more. Next in line are the oil company refineries which take the crude oil and convert it into several grades of gasoline, diesel fuel, heating oil products, and more.
The refineries in Ponca City and Houston, for example, then ship the product via pipeline to Terminals; the nearest terminal facilities to Grove are in Coffeyville, Ks. and Tulsa.

This is where the price starts to affect your pocketbook. Wholesalers, such as Arkansas Valley Petroleum, order the retail gasoline stations' supplies from the terminals, shipped in 8,000 gallon tanker trucks. Arkansas Valley keeps a small supply on hand in its own tanks to service farmers and other customers. It makes one cent a gallon for handling the product. The price it pays the Terminal varies every hour of the day and they keep checking constantly for the lowest prices. Wednesday the wholesale price in Tulsa was $2.31.

So you take the wholesale price and add a penny for the wholesaler profit, plus 35.4 cents per gallon for Federal and State taxes, plus freight of 3-5 cents a gallon to deliver to the retailer, plus 1-2 cents freight surcharge for the additional cost of fuel for the truck, plus 5-7 cents a gallon profit for the retailer. This gets you to about $2.76 per gallon retail.

Then there is the issue of Allocation. The various Terminals limit shipments from particular terminals, based on their supplies. Obviously, the tighter the supply, the higher the cost. If a refinery shuts down, then the supply pipelined to the Terminal obviously is cut. Gould says they try to buy from a variety of Terminals to get the best prices.

The retail station markup is driven by competition, says Gould, and the incentive is to keep the volume up. "Without volume, a station will go out of business." Unless of course, they offer full services such as lube, oil change, and tire sales, which explains why one Grove station nearly always has the highest prices for gasoline. Conversely, a station which sells groceries and other merchandise can cut the cost per gallon a few cents since it can be made up elsewhere in the store. The low volume, gas-only station is in trouble these days.

So why are gas prices in Bartlesville or Tulsa always lower than Grove? Bartlesville is close to Coffeyville, Ks. where a Terminal is located, cutting freight costs; Tulsa is also a source for major pipelines, refineries, and Terminals; Bartlesville is equidistant from Ponca City and Tulsa, offering competition. So if freight is 5-7 cents a gallon less, stations can afford to sell the end product at 5-7 cents a gallon less.

Prices at Grove gas stations should usually vary up to five cents a gallon, provided the owners don't get together and decide over coffee each morning to keep them all the same, which is considered illegal price fixing and anti-trust activity. Stations also have the option to sell below cost, to maintain their volume and stay in business, at least on a temporary basis.

And customers have the option of filling up elsewhere.

Grove motorists should pay attention to the local pump prices and consider going out of town whenever all of the local prices are the same, and 15-20 cents higher than elsewhere.