http://www.dailyfinance.com/2014/12/12/gas-stations-owners-like-low-gas-prices/
Gas station owners buy gas on the wholesale market. When the wholesale price of gasoline falls quickly, the difference between the cost of wholesale gasoline (with taxes) and the price at the pump gets wider, boosting profits for stations. The steeper the drop, the better. Station profitability is at its highest since 2005.
While this does mean you could be paying even less for gasoline than you already are, gas stations do not make much money from selling gasoline, averaging only 3 cents a gallon.
When the wholesale price of gasoline soars, like it did in 2012, station owners can't increase the price at the pump as fast as their costs are going up or they risk losing customers to competitors. But when the wholesale price is going down, like it is now, there isn't the same pressure to lower the price.
Because prices are lower, consumers no longer search all over town for the lowest price and they completely fill up their tank when they stop to get gas. Then, they spend the left-over money on what's really profitable for station owners: the drinks and snacks inside.
The real question is how much longer the low gas prices will last.
It would be interesting to see how the gas stations hedge against gas prices. I would they do some hedging just so that their whole business isn't based off variable costs which could be risky. If they were to hedge this year, they could be really hurting with the lower prices.
ReplyDeleteThere has already been a lot of discussion about the fall in oil prices, and looking at the current scenario of the boom in the oil market in the USA, this decline in prices can be predicted to decrease even further in the near future. We have already seen that the customers have been increasingly satisfied over these low prices and that declining prices have been beneficial for many day-to-day and other industrial purposes, but I am curious to know if this fall is affecting any side of the economy in a negative way. I am also interested to know what the current standpoint of OPEC is on this US scenario.
ReplyDeleteThis is very interesting, and I never really knew that this was how gas station profits worked, but it sure makes a whole lot of sense. Now that I'm looking at it it really makes gas stations seem like a lucrative business. I too wonder how long these low gas prices will last, and as long as OPEC is putting pressure on the U.S. they will continue to drop. I'm just waiting to see how many oil companies go out of business. The stock market is taking a hit day by day, and this definitely isn't a good time for investors, or Russia who gets a large portion of its income from oil exportation.
ReplyDeleteThis was interesting for me to read I never knew how tight the margins for gas stations were when it comes to the pump. Now it makes sense why you see more and more gas stations popping up who have little delis and markets in them. While the stock market may not be doing as well because of this price decrease the rest of the economy seems to be benefiting.
ReplyDeleteThis makes me wonder how consumers will react when the gas prices rise again, and how severely it might impact owners of gas stations.
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