People like Earl Hartman of Collinsville in Western Connecticut asked me how could a gasoline retailer on one day legally jack up the price of gasoline several times that was purchased days earlier?
And soon he and others will be asking why the price of gasoline is not dropping as quickly at gas stations as it is on the wholesale markets.
Good questions. Not sure if everyone is going to like the answers.
The reality is that gasoline station owners rarely make much money on gasoline. They make money when you go inside and buy soda, coffee or chips.
True. That is why there is not a single gasoline station left in Connecticut that is owned by a national oil company. The majors are all getting out of the retail business across the country.
The last ones in Connecticut were sold by Exxon Mobil in March when Alliance Energy in Massachusetts purchased the remaining 85 gas stations Mobile had.
To get an idea of how the retail gasoline works, I talked with Eugene A. Guilford Jr., president of the Independent Connecticut Petroleum Association and its education foundation.
Guilford took April 25 as an example to explain the economics of retail gasoline.
Watch my interview with Guilford at www.OnTheHORN’s Watchdog News Hour:
And on his views on Ethanol
On that date the wholesale price of gas in New Haven Harbor was $3.32 cents a gallon. By the time you add federal, state taxes, the fees retailers pay for credit card charges, the cost of that gallon to retailers was $4.12. And the average cost of retail gasoline that day was only two cents higher – $4.12.
Now unlike you and I who can charge gasoline purchases on our credit cards and pay 30 days later, retailers have to pay cash when they get their supplies.
So they have to come up with $20,000 to have 5,000 gallons delivered, plus the charge for delivery.
So most dealers that day lost money on every gallon of gas they bought. And those who had gas delivered a few days earlier and knew that prices would be going higher on their next load, understandably raised the price on the gas they had on hand to cushion against losses coming soon.
Gas dealers “want you to buy a coffee for $2 that only costs them 25 cents to make” Guilford said.
And he warned that now that the price of oil decreased dramatically, we won’t see that drop as quickly at the pump, unless there is a lot of competition in a particular area.
“Retailers will make up their losses” when the wholesale price drops and keeping prices higher, he said.
And as far as the cost of wholesale gas and oil, Guilford explained that there are three main factors, on which most economists agree:
1) The value of the dollar. Since oil and other commodities are priced in dollars, the less the dollar is worth the more it costs for oil. And with the federal government printing trillions of dollars – reducing the value of the dollar – the price of oil increases.
2) Energy policies. Oil prices could be dramatically impacted by conservation, switching to natural gas trucks, alternate energy, fuel efficiency, and the rate of growth in this country.
3) Speculators can temporarily drive up or down the price of oil, but they provide liquidity to the markets. If the value of the dollar strengthens and strong, smart energy policies were implemented, they would be betting on much lower oil and gas prices.
President Obama could have an immediate impact on prices by simply asking market officials to raise the amount of cash speculators need to purchase contracts. By increasing the margin amount, speculation – either up or down – would be limited.Those are the realities, not pretty, but the next time you see or hear a politician blaming someone other than US for the price of gasoline, keep these three factors in mind.
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