Wednesday, June 13, 2012

Anatomy of a gas price increase

Monday morning, Speedway initiated what amounted to a statewide increase in the price of gasoline in Michigan.
Speedway is a division of Findlay, Ohio-based Marathon Petroleum Co. and owns and operates more than 280 convenience stores and gas stations in Michigan. There is nothing illegal about a private business setting a price for a product, and Speedway set the price for a gallon of unleaded regular gasoline at all 284 of its operating stores at $3.899 on Monday morning.
What happened next was most interesting as the market responded to this.
Here are some screen shots of the GasBuddy iPhone app:

This was taken at 3:02 p.m. Monday. The prevailing price had been around $3.79. Pretty much every competitor in Mt. Pleasant matched the price within hours. No surprise there - it always happens.
In Alma/St. Louis, the previous prevailing price was $3.47, and Sound Off callers were demanding to know why Mt. Pleasant prices were more than 32 cents higher than Alma prices. Here's what it looked like Monday afternoon, about five to six hours after the Speedway move; Speedway stores are on Wright Avenue.

But by early Tuesday morning, prices in Alma/St. Louis  had this eerie look of sameness:

Several Sound Off callers angry about the $3.79 price in Mt. Pleasant cited prices of $3.54 in Houghton Lake. Here's how it looked Monday afternoon after the Speedway move - the Speedway outlet is next to U.S. 127:

You'll note that the Admiral and Clark stations are the only stations actually charging $3.54, but those are the prices drivers remember. But by Tuesday morning, they had matched the Speedway price. Only the BP station in Prudenville, to the far right of the screenshot, remained firm for a time at $3.61, but by Wednesday morning, it, too, had matched the price, while Clark and Admiral already were knocking a few pennies off.

Competitive pressures always force prices down, and that's happening. In fact, 224 Speedway stores had dropped their prices by Wednesday. But most had dropped only 1 to 5 cents; the biggest drops were 13 cents at individual stores in Fraser and Lansing.
Considering how big the increase was - in Sturgis, it was 60 cents a gallon, in Alma, it was 42 cents - those don't amount to much.
The increase stuck.
What's driving the increase? The price of crude oil is down to the $82 range. Gasoline futures are below $2.65. Granted, those prices are high, but down considerably from where they were earlier this year.
This move left Michigan with the highest average price of unleaded gasoline - $3.855, according to Michigan AAA through Wright Express and the Oil Price Information Service - of any state that doesn't have frontage on the Pacific Ocean.
What's the message here? 

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