Everyone's taking a hit on gas prices -- sometimes even the gas stations
A pump at the Stewart's at New Scotland and Whitehall in Albany on Tuesday.
Gary Dake, the president of Stewart's Shops, dropped a tweet last week that made us stop for a second:
Yesterday we sold 550,000 gallons of gas at an average margin of a 2 cent loss per gallon.
Yep, a regional chain -- with 271 gas station locations -- was selling gasoline last week at times for less money than it cost to buy and deliver it.
Curious about how that could happen, we called up Stewart's spokesman Tom Mailey for some background.
Mailey says there's "no typical margin" for Stewart's on a gallon of gas, but "it's never a huge number, [it's a] tight margin." And as the price of crude oil and gasoline goes up, the price the chain pays for gasoline also goes up. And as that price rises, so too does the price at the pump. No surprise there.
So, how does Stewart's end up selling gasoline for less than it cost to buy and deliver it? Why not just raise the price to cover the expense? "[Because] you probably couldn't get [the price] high enough to get there," Mailey says.
He explains that Stewart's sets its prices every day by looking at what's going on in the markets -- both the wholesale market for gasoline, and the local retail market. It shifts prices overall based on the wholesale market, but it also adjust prices at individual locations based on what nearby competitors are charging (last Friday Mailey said the company shifted prices at about 25 percent of its stations). And sometimes the wholesale price swings faster than the prices in the local market.
Mailey says there were at least two days last week that Stewart's sold gasoline at a loss.
There was a good AP article this week that explains how all this works in greater detail. And as Consumerist pointed out a few years back, gas stations owner usually just scrape by (or take losses) on the upswing of a price spike -- but sometimes make it up on the way back down by lowering prices slowly.
There's been a lot of volatility lately in both the crude oil and gasoline markets, in part because of the unrest in places such as Libya. As Mailey remarked about the current situation: "This is uncharted territory for everyone."
Stewart's sells about 3.8 million gallons of gas a week. Mailey says the company doesn't have a storage facility -- it buys gasoline as it needs it, much of it through a terminal at the Port of Albany.
Of course, just because Stewart's takes a loss on the sale of gas doesn't mean it's totally losing out. The gas pumps bring customers who also stop inside for higher-margin items like milk or coffee or Peanut Butter Pandemonium.
The average price of gallon of gas in the Albany area on Wednesday was $3.703, according to Gas Buddy. The national average was $3.507.
By the way: Gary Dake is worth following on Twitter (@GaryDake). He's only been tweeting for a few weeks, but a lot of his tweets have included interesting bits about the Stewart's business.
From 2008: How much is New York's gasoline tax?
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Comments
ooh ooh finally my "in" for this HUGE bit of info that no one seems to talk about:
http://www.eia.doe.gov/pub/oil_gas/petroleum/data_publications/company_level_imports/current/import.html
if Libya isn't even on the list of the top 15 countries from which we import oil, then why the hell does volatility in that country (or part of the world) have any impact on oil prices anyway? per the list, shouldn't we be worrying about a Quebecois uprising?
... said Rebecca on Mar 9, 2011 at 7:12 PM | link
@Rebecca: I hope this link helps:
http://yglesias.thinkprogress.org/2011/03/oil-when-inelastic-demand-meets-inelastic-supply/
... said Sean on Mar 9, 2011 at 8:14 PM | link
I wonder (not really) if retailers don't over-think their gas pricing. Why not peg the price to some daily factor that represents your rolling cost, plus x, and be done? Your prices will more or less vary in tune with your competition, and folks don't really comparison-shop for gas -- though they'll say they do if you survey them. Even a three-cent advantage on a 15-gallon fill-up saves you 45 cents, after all.
More likely, retailers fully automate their gas pricing, but maybe have days when they can't re-price fast enough and show a loss -- which makes opportunities for Mr. Mailey and Mr. Dake to draw a little sympathetic common-cause PR if they can find a willing journalist. Journalist gets an article, retailer gets some PR candy, readers/consumers get to commiserate, everybody wins.
Face it, we buy gas because we need it (inelastic demand), and we don't vary our shopping patterns to save a buck or less, not really.
But I'm pretty sure there are folks who never lose as gas prices fluctuate -- and maybe gain more when they're volatile: producers and hedged speculators, who are in position to invent elasticity for their own accounts. If there's a story, that's it.
LQ
... said Lou Quillio on Mar 9, 2011 at 9:58 PM | link
Meanwhile, gas is $3.15 in New Jersey.
... said Lu on Mar 10, 2011 at 12:10 AM | link
Lou Quillio- go to gasbuddy.com, find the lowest price in the area and go drive by around 5:30 PM. You'll see cars lined up waiting to save a few pennies per gallon (all the while wasting gas idling-- not to mention all the gas some of them wasted driving 10 miles out of their way). Keep driving until you see a nearby station where gas is selling for a few cents more. It will be relatively deserted.
Yes, people are dumb.
... said Meef on Mar 10, 2011 at 8:14 AM | link
@Rebecca -
Libya is a major supplier for Europe, and a significant chunk of the crude that supplies the US East Coast comes from the North Sea. So when the Libyan supply runs short, the demand from North Sea oil spikes.
We also get oil from other places, but getting stuff from there to here doesn't happen right away. For example, there are no pipelines bringing Gulf Crude to refineries in New Jersey and other places, and getting more oil from West Africa or the Middle East requires a big ship that takes weeks to get here.
The result is that in the short-term, the folks who own products oil in big tank farms get to charge more, since there are many people bidding for a finite supply of oil products. That's why a far away event results in a rapid increase in prices over the short term. Long term price shifts are ultimately driven by how quickly oil suppliers can pump the stuff from the ground.
... said Duff on Mar 10, 2011 at 8:15 AM | link
So Stewart's buys the gas and directly sells it. Just because the cost or price of gas went up during the day doesn't mean they lost money.
... said Ron on Mar 10, 2011 at 9:09 AM | link
i'm excited to see this post because i was just searching yesterday on twitter for stewart's. i was a little (ok not really at all) surprised they didn't have a twitter presence, but now i know they're starting! i can now tweet to @garydake how SUPER EXCITED i was to learn pints of ice cream were on sale for $1.99 when i stopped by my stewart's yesterday. also, a pint of espresso therapy makes a fine dinner for a 9 months pregnant chick.
... said kriskaten on Mar 10, 2011 at 10:39 AM | link
ugh. I knew there had to be some convoluted explanation and behavorial economics behind this.
I still find it annoying that Americans get all up in a snit when the price of gas goes up, as if "whhhaaat?? but..but..we're ENTITLED to cheap gas, even though the rest of the world pays twice what we're paying per gallon"!
just sayin.
... said Rebecca on Mar 10, 2011 at 11:39 AM | link
Mailey needs one of these:
http://69.9.3.100/modules.php?name=Shop&op=listing&product_id=1927910
... said Jeff S on Mar 10, 2011 at 11:40 AM | link
Albany is a port city...I don't get why the prices are 20 cents more than the national average. We get gas brought right into
the port. It would make sense to me if the gas was trucked over from Texas or something. Albany seems to have this bubble that repels outside forces, i.e. the housing prices, here, gas prices, etc. I never really understood that
... said Zubba The Hut on Mar 10, 2011 at 12:33 PM | link
@ Rebecca... But I need cheap gas! I drive an SUV (I have children). & I'm certainly not going to live within close proximity of my job, I work in ALBANY for crying out loud. & the bus is for scary thug types. Walking isn't an option either! From my driveway to the end of my development is a HALF mile (without sidewalks!!!) then another mile to a shopping plaza. Also I prefer to lounge around my house naked & keep the heat jacked to 74 (what better way to admire the results from driving (!!!) to the gym at the crack of dawn each morning!)
... said You can call me Mommy on Mar 10, 2011 at 3:16 PM | link
It's the damn greedy commodity traders fault. They get richer due to false fear. This trading model needs regulation.
... said jazzngas on Mar 10, 2011 at 8:55 PM | link
@You can call me Mommy
Theres more efficient, high capacity cars than SUVs (and minivans have a hell of a lot more interior room), and theres plenty of leafy, crime-free suburbs in Albany. As for the thugs, thats only on certain bus lines. From Pine Hills its very cheap, easy, and safe to get downtown on CDTA.
... said BBnet3000 on Mar 13, 2011 at 1:14 PM | link