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Tuesday, December 1, 2009

Gas Flow Means Cash Flow



 The gas pump, a little money grabber designed to drain the budgets of lower and middle-class Americans. Watch the poor consumer who wisely shops for the best gas value to find, unfortunately, that all local outlets price the precious commodity within a couple of cents per gallon. Did you ever see a smile on a gas patron as he watches the relentless turning of the price indicator go upward and upward? Not I. Something about an increase in the price of necessities will draw expletives from the most pious person, and volatile gas pricing ignites the hottest flames of protest.

Today, December 1, 2009, GasBuddy (www.ohiogasprices.com) and the USA National Gas Price Heat Map reports the following:

1. The average price for a gallon of gas in the United States is $2.64.
2. The average price for a gallon of gas in Ohio is $2.55.
3. The price for a gallon of gas in Scioto County, Ohio, ranges from $2.54 - $2.61.
4. The price for a gallon of gas in Pike County, Ohio, ranges from $2.75 - $2.82.
5. The price for a gallon of gas in some areas around Huntington, West Virginia; Columbus, Ohio; and Cincinnati, Ohio, ranges from $2.47 - $2.54.
6. The lowest price in Ohio for a gallon of gas is found at a Swifty station in North Dayton, Ohio, and is $2.35.

For those who care, help is available on the Internet.The OhioGasPrices.com web site states, "Our mission is to serve the public by providing a real time gas prices forum so that consumers can have access to the information necessary to locate the lowest fuel prices available. By working together as a community everyone will save money at the pumps."
 
The site was developed as an initiative to provide all residents and visitors to the Ohio area access to local current gas prices. An entirely free service, the site depends on users to input gas prices on a daily basis to keep the database of prices up to date. By having access to the most recent prices at OhioGasPrices.com, consumers are able to locate the most inexpensive fuel price in their nearby area and fill up on a budget.


The site reports, "The fuel prices listed on OhioGasPrices.com are intended to be based on the price of Regular Unleaded Gasoline and Number 2 diesel fuel. The data base is designed to remove prices from display 24 hours after the time that they were entered which helps to keep the price data as current as possible. The GasBuddy system is designed to access the OhioGasPrices.com database from a remote location and displays the current local low and high fuel prices." 

OhioGasPrices.com also provides other fuel related information and money saving tips for consumers in Ohio.



 Causes For Fluctuations In Cost 

The information above is pertinent today, yet we are all aware that the price of gas is often extremely volatile, and posted gas prices may vary as much as 20% within only a few blocks of each other. Why does this price difference occur? Thanks to a recent article in the Pittsburgh Post-Gazette by Elwin Green ("Local Gasoline Prices Higher Than Statewide, National Averages," December 23, 2008), we may find a few answers.

1. Location. 

"Certain places are farther away from terminals, and that could impact the price," said Jeff Lenard of the National Association of Convenience Stores, the trade association for owners of convenience stores that sell gasoline, which are the most common type of gas stations. The farther away a station is located from pipelines and refinery  terminals, the more expensive it is to have gasoline delivered to it. Where is the refinery that supplies Scioto County?
I simply don't know.

According to the U.S. Energy Information Administration, distribution and marketing costs accounted for 25 cents of every dollar spent at the pump. Taxes accounted for 19 cents, and paying for crude oil took 60 cents. That adds up to $1.04. The remaining category, refining costs, totaled a negative four cents, meaning that refiners lost money.
(Note - By the fall of 2008. crude oil prices began to fall due to the weakening economy and collapse of global diesel demand, which had pushed oil prices to record levels earlier in the year. The Energy Information Administration, "Official Energy Statistics From the U.S. Government")

The Energy Information Administration relates that refining costs and profits vary from region to region of the United States, partly due to the different gasoline formulations required in different parts of the country. The characteristics of the gasoline produced depend on the type of crude oil that is used and the type of processing technology available at the refinery where it is produced. Gasoline prices are also affected by the cost of other ingredients that may be blended into it, such as ethanol.

2. Taxes

Like distribution costs, the taxes paid for gasoline also vary by location. While the federal excise tax of 18.4 cents per gallon of gasoline is uniform throughout the country, states impose their own taxes that vary widely. All State excise taxes averaged 21.7¢ per gallon at the beginning of 2009. Ohio's fuel taxes are currently at 46.4 cents per gallon.

Besides state taxes, some municipalities impose their own fuel taxes.

3. Wholesale Pricing

Wholesale pricing refers to the amount that retailers pay for the gasoline. A branded retailer, such as a BP station, may be able to purchase gasoline only from that brand supplier. That supplier may offer discounts to a retailer located in an area that is known to be competitive, while a station in a less competitive market would not receive that discount.

And in the world of retail gasoline sales, the market can be surprisingly small in geographical size. "For a corner gas station, you're looking at a radius for people who travel five minutes," Mr. Lenard said. If a consumer can find a cheaper price within a five-minute drive of a location, they'll take it."There may be two identical brands within a mile of each other that may be dramatically different in price," he said. "It could be because the wholesale price was dramatically different in those two areas."

3. Pricing Strategy

Differences between individual retailers may be partly a matter of pricing strategy. A retailer may choose to keep prices as low as possible and make money on volume. Some retailers may opt to maintain a more constant margin while settling for a smaller number of customers. Consider big operations such as Krogers that offer gas at competitive prices while selling most customers groceries.



The Future

Scripts News Service and the Pittsburgh Post-Gazette (November 27, 2009) predict some unsettling news. The U.S. Energy Information Administration is projecting that higher crude-oil prices will contribute to an increase in the annual average gasoline retail price from $2.36 per gallon in 2009 to $2.81 in 2010, with prices near $3 per gallon during next year's summer driving season.

The price of gasoline tracks closely the price of the crude oil, which has risen steadily since the beginning of the year, closing at $77.96 a barrel in November, Elwin Green reports.

It seems the increases are not driven as much by supply and demand as the continued weakness of the U.S. dollar.
Of course, it takes more weak dollars to buy each barrel of oil.

And, supplies are so abundant that refiners are shutting down facilities."There's so much supply for refiners to use," AAA spokesman Brian Newbacher says. "There are literally hundreds of millions of barrels floating in the oceans on tankers."

Of course, the bottom line for refiners is that demand is down because people aren't traveling as much, so what they can charge for gasoline and jet fuel is limited. Why aren't people traveling? You guessed it -- tight money in a weak economy. The circle game.

And, so it goes. Look for more weeping and swearing at the gas pumps next year. Maybe this should be the aim of our biggest gasoline raves:

Crude Oil

CNN reports, "This is the most expensive part of a gallon of gas. Of every gallon of gas $2.07 from every gallon of gas goes to producers of crude like Chevron (CVX, Fortune 500), BP (BP), and smaller outfits like Anadarko (APC, Fortune 500) and Marathon (MRO, Fortune 500), or national oil companies controlled by countries like Saudi Arabia, Mexico or Venezuela." (Steve Hargreaves, CNNMoney.com, March 19, 2008)

Crude currently trades around $110 a barrel, but breaking down the money in that barrel of oil is tough. Exploration and production costs, royalty payments - all a big part of $110 a barrel oil - vary widely country by country and project by project.

$40 billion - or any of the record profits seen by most oil companies over the last few years - is certainly a lot of money, and it has put Big Oil in lawmaker's cross hairs.


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