One of the most common questions on the minds of consumers is why the price of gasoline differs from place to place.
No other commodity is advertised as prominently as petroleum. Gas stations post their prices on tall signs that can be seen from far away, which allows motorists to easily compare prices from one station to another.
In researching the price of gas throughout the region, The Union found that prices do not vary much within a city. Most gas stations are within a few pennies of each other. However, the price between towns, even neighboring towns, can vary by as much as a few dimes per gallon. And when comparing one region of the country to another, the price can vary by more than $1.
Retail gasoline outlets are tight-lipped about how and why they set the prices they do. The Union reached out to several gas stations in southeast Iowa, but most of them declined to comment. Dipash Gautan, who helps manage the Corner Stop in Washington, was willing to share a few insights about how he determines his station’s price.
“I follow the bigger chains like Casey’s and Hy-Vee. I try to match what they’re doing,” he said. “We have to be at the same price as others in town. If you cannot compete, you won’t make sales.”
Gautan said the price of gas can change with every truck delivery, or even more frequently than that.
“Sometimes I have to change the price [on the digital sign] every day, and sometimes it stays the same for a week or two,” he said. “The price of gas depends a lot on politics, on how the U.S. government handles oil producing states.”
Gautan remembers that the price of gas rose to $4 about eight years ago, prompting a lot of griping from consumers.
“Gas stations are places where people get gas, but we can’t control the price,” he said. “The price is determined by how much gas can be supplied every day and every month.”
Jet Gas Corporation in Houghton, which owns Jet Stop in Fairfield, declined to comment for this article. Cobb Oil in Brighton did not return a request for comment. Casey’s corporate office not return a request for comment, and Hy-Vee’s corporate office said information about its pricing strategy is considered proprietary information and would not share it. Sam Herro, Kum & Go’s director of retail fuels, said he cannot discuss pricing decisions or information about how much fuel his gas stations receive or how frequently they receive them. However, he noted that organizations such as Oil Price Information Service (OPIS) are a good source of information about gas pricing.
According to OPIS, retailers purchase truckloads of gasoline at one of roughly 400 wholesale terminals in the United States. About 220 of these terminals are on pipelines. A typical gasoline truck can transport 8,000 gallons at a time.
OPIS notes that there are 31 “flavors” of gasoline depending on what fuels are mandated in a particular state. For instance, some parts of the U.S. have been deemed high in pollutants, and those areas are required by the Environmental Protection Agency to have reformulated gasoline.
Who comes up with the price of gasoline? OPIS said the most common way retail gasoline is priced is by tying it to a wholesale vendor or “rack” to use the industry lingo. Take the rack price and add in all taxes – federal, state and local – and the cost of transporting the fuel to the gas station. On top of that, retailers add in their own margin, which is what they estimate their own profit to be.
“The retailer always has to be mindful of what his competition is charging, especially if he or she is competing against a ‘hyper-marketer,’” wrote Scott Berhang on OPIS’s blog. “What’s a hyper-marketer? It’s someone like a Wawa or a Costco who sells fuel as a way to get the customer into the store. Many times, those hyper-marketers give up margin for the sake of inside sales.”
Berhang predicts that big-box hyper-marketers will take up more of the market as time goes on.
Mt. Pleasant – an outlier
According to the website gasbuddy.com, the average gas price in the state of Iowa on July 30 was $2.59 per gallon. Gas Buddy maintains a gas station price map showing how the price of gas differs from town to town. The map shows that Mt. Pleasant is an outlier, with gas 20-30 cents cheaper than in neighboring cities such as Fairfield and Washington where gas is between $2.59 and $2.69.
As of July 30, Mt. Pleasant was one of the few cities in Iowa to post gas prices under $2.40. A few other stops along Highway 218 could also claim that, one in Olds and the other just east of Salem. Other cities posting prices below $2.40 were West Burlington, a few gas stations on the west side of Cedar Rapids and some near Altoona.
It’s not clear why Mt. Pleasant’s gas is priced lower than surrounding towns. Kristi Ray, executive vice president of the Mt. Pleasant Chamber Alliance, has a few theories.
“We’re fortunate because we have a number of our convenience stores that are locally owned,” she said. “If you look at the Pep Stop, it’s owned by the Fedler family, and has been in business for years. They set the stage for all the other ones.”
Cobb Oil of Brighton owns the BP, and Jim Reif of Reif Oil in Burlington owns Fast Break.
“I honestly have to say that the reason the gas prices are low is because we’re fortunate to have good local managers who support our community,” Ray said. “That’s not to say that other towns don’t, because I don’t know who owns gas stations in other towns.”
Ray pointed out that Mt. Pleasant is well positioned at the intersection of two busy highways: Interstates 34 and 218.
“We’re on the Avenue of the Saints, and we’re an hour north of the Iowa line, so we’re a good stopping point for people coming from St. Louis,” Ray said. “I remember that when the Pilot Truck Stop opened in 2013, we got a huge jump in sales tax revenue.”
Iowa’s average price of $2.59 per gallon puts it lower than most surrounding states with just a few exceptions. Here are the average gas prices per gallon in other Midwestern states as of July 30, from highest to lowest:
South Dakota: $2.65
The nationwide average price for a gallon of gasoline is about $2.75. That number was as low as $2.25 in January, and was even lower locally where the Quad Cities reported an average price of $1.94. The cheapest gas in the country can be found in the south in states such as Texas, Oklahoma, Louisiana and Mississippi where it’s about $2.25 per gallon. The most expensive gasoline is found in California, where it’s more than $3.50 and even $4 per gallon in some cities.
The price of gas, just like any commodity, goes up and down over time. It was at this same national average of $2.75 about nine years ago, just before it skyrocketed to $4 in the spring of 2011. It stayed above $3 per gallon until a precipitous drop during 2014 caused it to fall to $2. After a few months of inching back up, the price bottomed out at $1.72 in February 2016.