Gas station economics lesson

Truck needed fuel, so I waited for the witching hour (10pm) when gas
prices drop for an hour around here. Drove past a Shell offering Regular
at 89.9¢, but I have a beef with Shell at the moment, and I try to buy
Esso when possible, for their fuel has the lowest Sulphur content of any
available in this market.

I pulled onto the forecourt of the nearest Esso and stopped at a pump. I
got out, and noticed a professionally-printed, laminated sign affixed to
each pump: the sign indicated that they had sold out of regular, and so
were selling high-test at the price of regular. The price? 88.5¢, a
relative bargain in this market lately.

As I filled the truck's big tank, it occurred to me that something's fishy
here. Usually you get three grades of gasoline. Regular low-test and
premium high-test are stored in separate underground tanks. Mid-test is
made by means of the pump blending regular with high-test. The unit price
difference between regular and mid-test, and between mid-test and
high-test is generally a dime, give or take a few pennies. So, at this
particular Esso, that would've been 88.5¢ for regular, 98.5¢ for mid-test,
and $1.085 for high-test.

And yet, there they were, selling the high-test for 88.5¢. The last time I
saw high-test for 88.5¢, regular was 68.5¢ or thereabouts.

That they could keep the station open, pay the power bill and pay the
employee with the unit price of high-test slashed 20¢ (an 18.4% price cut)
tells us something about the fat profit margins the oil companies swear up
and down don't exist. If those margins didn't exist, then this evening's
pricing would've been a red-ink experience and they'd've simply closed the
station, at least for gasoline sales.

DS

Daniel J. Stern wrote: <brevity snip>
> That they could keep the station open, pay the power bill and pay the
> employee with the unit price of high-test slashed 20? (an 18.4% price cut)
> tells us something about the fat profit margins the oil companies swear up
> and down don't exist.
-----
Oil companies are publicly owned. Their profits are a matter of public
record. None deny their profits and they shouldn't have to. As long
as consumers create demand exceeding supply profits will remain exactly
as you and I would like if we owned oil company stock.

If you find the profits of petroleum comapnies objectionable don't buy,
or reduce your consumption of, petroleum related products. That's
capitalism at work, baby...
-----

- gpsman

Daniel J. Stern wrote:
> Truck needed fuel, so I waited for the witching hour (10pm) when gas
> prices drop for an hour around here. Drove past a Shell offering Regular
> at 89.9?, but I have a beef with Shell at the moment, and I try to buy
> Esso when possible, for their fuel has the lowest Sulphur content of any
> available in this market.

As can be seen at http://www.ene.gov.on.ca/envision/air/sig/2004.htm
.....

> The unit price
> difference between regular and mid-test, and between mid-test and
> high-test is generally a dime, give or take a few pennies. So, at this
> particular Esso, that would've been 88.5? for regular, 98.5? for mid-test,
> and $1.085 for high-test.

When premium unleaded became available in Toronto, back in the '80s,
premium was 1 or 2 cents/litre more. Gas prices were around 40-50
cents/litre for regular, as I recall. (I recall one small independent
station in Kingston which charged the same price for regular or
premium!)

Petro-Canada introduced mid-grade gasoline somewhere around 1990.
Their nifty marketing concept was three grades, and the price
difference between each grade was the same as the generally-accepted
difference between regular and premium.

As I recall, the original price gaps Petro-Canada posted were 1.5
cents/litre. Base price per litre in the early '90s went up some due
to the first gulf war--as high as 60-70 cents/litre for regular.

> And yet, there they were, selling the high-test for 88.5?. The last time I
> saw high-test for 88.5?, regular was 68.5? or thereabouts.
>
> That they could keep the station open, pay the power bill and pay the
> employee with the unit price of high-test slashed 20? (an 18.4% price cut)
> tells us something about the fat profit margins the oil companies swear up
> and down don't exist. If those margins didn't exist, then this evening's
> pricing would've been a red-ink experience and they'd've simply closed the
> station, at least for gasoline sales.

So in 1990, you could have bough regular/midgrade/premium for say
50.0/51.5/53.0.

Today, you can buy regular/midgrade/premium for 90.0/100.0/110.0.

The gas station may or may not be making a profit selling premium for
20 cents off. I bet they would lose a lot of money selling regular for
20 cents off.

Conclusion: the fat profits come from those folks who prefer, or are
required, to use premium gasoline. (And the ones who buy "special
deals" of pop and a candy bar for $2.22....)

By the way, a lot of your postings, including this one I'm replying
to, are showing up with a border which I think is trn-speak for
"HTML-format posting" They mostly are not multi-part mime, though..

On Fri, 13 Jan 2006, wrote:

> When premium unleaded became available in Toronto, back in the '80s,
> premium was 1 or 2 cents/litre more. Gas prices were around 40-50
> cents/litre for regular, as I recall. (I recall one small independent
> station in Kingston which charged the same price for regular or
> premium!) Petro-Canada introduced mid-grade gasoline somewhere around
> 1990. Their nifty marketing concept was three grades, and the price
> difference between each grade was the same as the generally-accepted
> difference between regular and premium.
>
> So in 1990, you could have bough regular/midgrade/premium for say
> 50.0/51.5/53.0. Today, you can buy regular/midgrade/premium for
> 90.0/100.0/110.0.

Yep. And yet the oil companies carry on bitching and moaning about their
almost-nonexistent profit margins at the gas pump (even as they post
record billion-dollar quarterly profits...) and the government carries on
making periodic lackadaisical "investigations" into gas prices, never
finding any evidence of funny business.

> By the way, a lot of your postings, including this one I'm replying to,
> are showing up with a border which I think is trn-speak for "HTML-format
> posting" They mostly are not multi-part mime, though..

Ummm...that's odd, because I'm using a mailreader (PINE) that's about as
far from an HTML-generator as it's possible to get.

Daniel J. Stern wrote:
> On Fri, 13 Jan 2006, wrote:
>
> > When premium unleaded became available in Toronto, back in the '80s,
> > premium was 1 or 2 cents/litre more. Gas prices were around 40-50
> > cents/litre for regular, as I recall. (I recall one small independent
> > station in Kingston which charged the same price for regular or
> > premium!) Petro-Canada introduced mid-grade gasoline somewhere around
> > 1990. Their nifty marketing concept was three grades, and the price
> > difference between each grade was the same as the generally-accepted
> > difference between regular and premium.
> >
> > So in 1990, you could have bough regular/midgrade/premium for say
> > 50.0/51.5/53.0. Today, you can buy regular/midgrade/premium for
> > 90.0/100.0/110.0.
>
> Yep. And yet the oil companies carry on bitching and moaning about their
> almost-nonexistent profit margins at the gas pump (even as they post
> record billion-dollar quarterly profits...) and the government carries on
> making periodic lackadaisical "investigations" into gas prices, never
> finding any evidence of funny business.

No, the almost-nonexistant profit margins at the gas pump is for the
station owner, not the oil company.

In article ch.edu>, Daniel J. Stern wrote:

> Yep. And yet the oil companies carry on bitching and moaning about their
> almost-nonexistent profit margins at the gas pump (even as they post
> record billion-dollar quarterly profits...) and the government carries on
> making periodic lackadaisical "investigations" into gas prices, never
> finding any evidence of funny business.

Supposedly, the station owners don't make much on the sale of gasoline.
However, I don't understand how that is. But then again, there is a
station not far from me that has had their car wash open but the pumps
shut down for about a year or more now as they reconfigure the layout of
the place. They seem to be in no rush to get the pumps operating again.

However little or much the station owners make doesn't have any bearing
on the actual profits of the oil company. Since the oil company profits
are in the wholesale price.

If you read some the alternative media, you'll find that in the 1990s
when gasoline prices were very low it was due to over capacity, over
supply. Too much refined gasoline. Big oil companies then decided to
start buying up independent refineries and then closing them. This
reduced capacity and supply and has increased profits. Thanks to
environmental regulations and more importantly the political climate,
capitialism cannot correct the situation by new players being brought in
attracted by the high prices and potentional profits to undercut big oil.

Big oil will tell us they closed refineries etc because of the
environmental regulations. I believe this is a big lie. Oil companies are
using the regulations, NIMBY, etc as market protections. It protects them
from competition.

> Ummm...that's odd, because I'm using a mailreader (PINE) that's about as
> far from an HTML-generator as it's possible to get.

Your posts are often coming up in MIME and a bit munged by it

On Fri, 13 Jan 2006, Mike T. wrote:

>> And yet the oil companies carry on bitching and moaning about their
>> almost-nonexistent profit margins at the gas pump (even as they post
>> record billion-dollar quarterly profits...) and the government carries
>> on making periodic lackadaisical "investigations" into gas prices,
>> never finding any evidence of funny business.

> Ever notice how when the investigations start, prices drop like a rock
> for a while. And then when the investigation is dropped, we are back to
> (pre-investigation) prices within a week or two?

....and, the *instant* the price of a barrel of crude goes up by five
cents, gas prices zoom skyward. "We have to cover our raw-material costs",
is the explanation. When crude prices drop by four bucks a barrel, gas
prices remain high. "We can't lower prices until we've sold off all the
gasoline made with higher-priced raw materials", is the explanation.

> When premium unleaded became available in Toronto, back in the '80s,
> premium was 1 or 2 cents/litre more. Gas prices were around 40-50
> cents/litre for regular, as I recall. (I recall one small independent
> station in Kingston which charged the same price for regular or
> premium.

Back in the '80's I owned one of them Hyundia Pony's, It cost $14.00
(canadian) to fill er up and that would last nearly 500 km's. The unleaded
gas I bought was around .44 - 49 cents per litre out in the "country", now
those same country gas stations are in new urban areas.. The regular gas
of the day (still had leaded) cost about 38 cents/litre.

> The gas station may or may not be making a profit selling premium for
> 20 cents off. I bet they would lose a lot of money selling regular for
> 20 cents off.

I have seen that a few times, were the station runs out (out= really low
since the tank design prevents them from being pumped dry) of regular fuel
and offers the mid grade fuel for the same price, since the mark up between
reguklar and midgrade is very small and the mark up on regular to begin with
is about 20-28% the station will still make its profit on the volume of fuel
they sell, the larger the tank being filled the more profit for the
station. Seeing how many stations get a discount for large volume buys, the
closer their tanks are to empty when the tanker comes the cheaper they (the
stations) get the fuel for.

> Conclusion: the fat profits come from those folks who prefer, or are
> required, to use premium gasoline. (And the ones who buy "special
> deals" of pop and a candy bar for $2.22....)

Don't forget the 6 pack of water for $10 or the $5 bundle of firewood. as
well as the $4 litre of oil.

Snow

Brent P wrote:
> In article ch.edu>,
> Daniel J. Stern wrote:

[multipart MIME messages]
> > Ummm...that's odd, because I'm using a mailreader (PINE) that's about as
> > far from an HTML-generator as it's possible to get.

> Your posts are often coming up in MIME and a bit munged by it

I've noticed that when Daniel attempts to quote one of the extended
ascii characters in messages like: ¢ ± ² ³. I don't know if PINE
has the option of sending messages with raw 8-bit characters without
having to resort to 'quoted printable' MIME encoding.

In article ich.edu>, Daniel J. Stern wrote:

> ...and, the *instant* the price of a barrel of crude goes up by five
> cents, gas prices zoom skyward. "We have to cover our raw-material costs",
> is the explanation. When crude prices drop by four bucks a barrel, gas
> prices remain high. "We can't lower prices until we've sold off all the
> gasoline made with higher-priced raw materials", is the explanation.

What I would like to know is what it actually costs these oil companies
per bbl. I doubt it's the actual "market" price since they will have
agreements or own the oil fields.