Due to the volatility in the wholesale price of gasoline and the competitive structure of the market, fuels retailers typically see profitability decrease as prices rise, and increase when prices fall. Over the course of a year, retail profits or even losses on fuels can vary wildly. In some cases, a few great weeks can make up for an otherwise unprofitable year, or vice versa.
In-depth insights on motor fuels and market conditions that affect fuel prices are available in the Fuels Resource Center.
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After credit card fees and other operating costs, net profit for gasoline sales averages 3 cents a gallon, according the National Association of Convenience Stores. When gas prices soar, and drivers think they're being gouged, stations are barely scraping by or even losing money.
When the wholesale price is soaring, like it did in , and , 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. When the wholesale price is going down, like now, there isn't the same pressure to lower the price. Drivers are so happy to see lower prices they don't search all over town for the lowest one. And then when they put gas in the tank, they fill 'er up instead of just putting in a few dollars' worth.
And drivers have some money left over to spend on what's really profitable for station owners: The drinks and snacks inside. Gas has fallen because the global price of crude oil has dropped 45 percent since this summer. The U. March 24, read.
Consumers recognize when gas prices change—and some are willing to drive 10 minutes out of their way to save a few cents per gallon. Gasoline prices are affected by these costs: crude oil, taxes, refining, and the transportation costs after the fuel leaves the refinery, retailer expenses and profit, which are the distribution and marketing costs. Crude oil prices have the main impact on retail gasoline prices.
Given there are 42 gallons of oil per barrel. A rough calculation is that retail gasoline prices move approximately 2. While this is not an exact calculation, it demonstrates that as crude oil prices change, so does the price of retail gasoline. Retailers selling fuel account for expenses like taxes, including a federal excise tax of Less than 0. Each of these companies has different business strategies, which can dictate the type of fuel they buy and how they sell it.
Even within a specific company, stores may not have the same arrangements, since companies often sell multiple brands of fuels, especially if they have acquired sites with existing supply contracts. Fuel retailers face the same question as all retailers: sell at a low profit per unit and make up for it on volume, or sell at a higher profit per unit and expect less volume?
Location can also be a factor. For example, stores located in areas where real estate costs are high may pass along this cost of business when setting their retail fuel prices. Some stores may factor in seasonality, particularly if they are in a location where customer traffic dramatically changes during the summer and winter months, and other stores may be in a competitive market where consumers have ample choice of where to shop.
Depending on sales volumes and storage capacity, retailers can receive as many as three deliveries a day or as few as one delivery every three days. Due to competition for customers, retailers may not be able to adjust their prices in response to an increase in wholesale prices because their competition may not have incurred a similar increase in their cost of goods sold. Conversely, a retailer may adjust gas prices when the competition adjusts prices, either following or in advance of a shipment.
There are times when a retailer with the highest posted price in an area could be making the least profit per gallon based on when , how and where the fuel was purchased. No matter the pricing strategy, retailers tend to reduce their markup to remain competitive with nearby stores when their wholesale gas prices increase.
This can lead to a several-day lag from the time wholesale prices rise until retail prices rise. Likewise, when wholesale gas prices decrease, retailers may be able to extend their markup and recover lost profits, with retail gas prices dropping slower than wholesale prices. For reliable coverage on all things related to the fuels industry—from refinery supply to terminal and bulk plant storage to transportation via pipeline, barge, rail and truck, to wholesale distribution and retail marketing—visit Fuels Market News website, weekly e-newsletters and print magazine.
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