Gasoline prices may go down this June
June 18, 2010
Utah motorists have noticed that gasoline prices are higher here than most surrounding states. And, with demand normally increasing in summer, prices typically follow suit. But this June, prices have fallen and may go lower. What gives?
David Bell, owner of five stations four in Summit County said one factor is the production capacity of the Salt Lake Valley refineries. Because of some problems in the spring, the "summer spike" in prices came prematurely in the spring, Bell explained. As a result, fuel prices have been falling, not rising, this month.
Steve Wiseman, owner of the Kamas Chevron station, said prices are likely to fall farther over the next two weeks. As the price bottoms out, retailers will have confidence in predicting their profit margin and will likely lower their prices to capture more of the market share.
What one business does is likely to affect another, Bell said.
"Fuel is probably the only item that is priced on every corner in Utah. I can’t think of another retail item that gets that kind of exposure to what you’re selling it for that day," he said. "The very nature dictates it’s going to be a very competitive item."
As a result, he added, the profit margin for retailers is low. Compounding that is the high rates credit card companies charge as service fees. Yet despite the low margins, the state actually has to legislate that fuel is not to be sold for lower than cost because some businesses make so much off grocery, cigarette or beverage sales that they prefer to lose money on fuel to attract customers.
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Bell said he also sells to other stations as a wholesaler and has insight into the workings of refineries. The reason some stations are consistently cheaper and others fluctuate widely is because of a habit of the refineries of selling excess as "unbranded" fuel at changing prices.
Refineries try to operate at 100 percent efficiency or capacity. They also have a certain number of orders to fill for their contracted retailers. If a day’s production exceeds its orders, it will sell fuel without its brand’s additives. The price of that fuel is determined by the supply and demand produced by the other refineries and buyers.
Some gas station retailers buy only unbranded fuel. That’s why they offer lower prices, but also appear to have inconsistent quality, Bell explained. Others buy it sometimes, but not always, and blend it with their branded fuel.
Another trend is yearly maintenance. Each refiner has storage tanks. When they shut down for yearly maintenance, they sell from the storage. Because it is a finite supply, it raises the price for that period, he explained.
Bell said it makes him angry how often media reports point fingers at retailers as culprits when prices rise. From the wellhead to the car’s tank, retailers have the least control over pricing, he said.
Ironically, retailers make less money when prices rise because the credit card companies take a larger amount of the profits as fees, Esposito said.
Retailers mainly benefit when prices fall and the stations are able to bring down prices slowly, enjoying increased margins.
Wiseman and Tim Woolstenhulme, owner of Dutch’s Service Station in Oakley, said they try to maintain the same profit margin all the time as a business strategy. Wiseman does it to compete with others in Kamas and Woolstenhulme said he likes to give customers consistency.
There are other examples of retailers having some control of prices within a limit.
People who commute between Park City and either Heber or Salt Lake City may have noticed gasoline prices are a little higher here.
Joline Esposito, part owner of the Jitterbug Gas and Variety Store in Heber, said it’s likely because Park City people are willing to pay it, the stations have less competition in Summit County, and because those bordering I-80 can charge interstate travelers a little more.
Bell said his Coalville Sinclair station on the east side of I-80 is generally two cents lower than his Phillips 66 store on the west side because the Sinclair station is used more by locals and the other by interstate travelers.
Some of the most expensive gasoline that could be purchased in Summit County on Thursday was at Grump’s in Henefer. Employee Mindy McLane said that’s because of the station’s isolation.
Esposito pointed out that prices at the Maverick in Park City are consistently higher than the Maverick in Heber even though it’s the same gasoline. On Thursday it was about a six-cent difference.
The Kamas Food Town said its Sinclair station tries to keep prices low to attract grocery shoppers.
Wiseman said owners with several stations, like 7-Eleven operators for example, can afford to maintain prices lower because the stores can subsidize one another.
The Summit Quick Stop Sinclair station at Parleys Summit and the Terrible Herbst Chevron station at Kimball Junction both had higher prices than the Park City average on Thursday. That’s because they can charge that to interstate travelers with their extremely convenient locations, Esposito said.
In general, prices are dictated by what neighbors are charging, she and Bell agreed.
On Thursday, that was between 2.89 and 2.95 as a median average in Summit and Wasatch counties. Some had higher or lower prices depending on brand and location.
Gas prices around Summit County on Thursday, June 17:
Grump’s in Henefer: $3.27
Holiday Hills Phillips 66: $2.99
Bell’s Sinclair: $2.97
Moore’s Chevron: $2.99
Terrible Herbst Chevron: $2.99
Maverick on Bonanza Dr.: $2.95
Blue Roof Tesoro: $2.95
Jeremy Store: $2.93
Kamas Chevron: $2.95
Kamas 7-Eleven: $2.95
Food Town Sinclair: $2.94
Dutch’s Phillips 66 in Oakley: $2.89
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