How MOST Fuel Stations Operate (Market is Up Today)

I have a job in the fuel supply industry and part of my day has to do with checking on market conditions. Holy crap this one caught me off-guard. The fuel market, across the board, is up 6-10 cents per gallon (edit: physical market is 4-6 cents and futures 7-8 cents...so not as crazy) as a knee-jerk reaction to Obama addressing what is happening in Iraq and the events in Iraq themselves. I had no idea anything was going on because I do not watch or read the news. Most of the stuff reported is too depressing.

So what does this have to do with you?

Here's a quick low-down on how MOST fuel stations price their fuel.

Full disclosure: I am a relative novice in the industry and am just conveying my interpretation. As with most information, do with it as you will.

Take however many suppliers are in your market. You, as a consumer, will not know just how many companies hold positions at your local fuel terminal but for the sake of argument let's say there are 10. Now, all 10 of those suppliers got fuel into that terminal through the pipeline (or barge). The companies can supply their own fuel (they are refiners who also supply) or they can buy from refiners. Everyone pays taxes and fees, some have special rates due to volume and some don't have markups because they supplied their own fuel. At the end of the process you arrive at 10 companies with positions and 10 different prices.

How MOST Fuel Stations Operate (Market is Up Today)

The prices of supply today are determined, largely, by the market price and movement yesterday. Let's the average price of the 10 in our example today is $2.9800. The market, based in the Gulf Coast, the Group, NY Harbor or Chicago...wherever you are...has gone up $.0600 today. You can expect tomorrow's average price of those 10 suppliers to be about $3.0400.

Now, the exact average is not going to be there. Some suppliers will raise their prices by $.03 while others do the full $.06 or beyond. It all depends upon their individual costs, replacement supply and strategy.

These prices get published every day and companies with fuel stations (or companies that supply fuel stations) will try and get the best price each day. They may have contracts that guarantee a certain price in relation to the market or they may end up with a supplier that went up higher than the average. At the end of the day, the cost of fuel to fill their underground tank at the station just went up. What does that mean? Their price goes up.

Now it becomes a game. Fuel stations watch each other...they price against each other...they try to steal volume from each other. Who will be the first one to react to the market? When will they change? How will Station X's change impact my sales and price? I do not know the intricacies of this end of the chain but the exposure I have had to it makes it seem much more dynamic than the average consumer may think.

Long story short, market is really, really up today. If you are running low on fuel like I am you may want to fill up today...who knows what tomorrow will bring?

I just want to remind you, the reader, that this is just me giving you my observations. If you fill up today and the station down the street drops its price $.02 tonight, my bad.