Q&A of the Day – Gas Price Manipulation
Each day I feature a listener question sent by one of these methods.
Email: brianmudd@iheartmedia.com
Social: @brianmuddradio
iHeartRadio: Use the Talkback feature – the microphone button on our station page in the iHeart app.
Today’s entry: Jill Runty on X: "From a friend… ⛽️ https://t.co/FKNeCbNcMG" / X ; Today’s note is from a listener commenting on my message that gas stations have commonly taken advantage of the news cycle by arbitrarily raising prices immediately following the start of the Iran war.
Bottom Line: As I mentioned earlier this week: Gas stations are playing games with your wallet. They're charging you based on old wholesale prices while pocketing the difference from current market rates. There are occasions in the past where I’ve defended gas stations over price changes, as the average price margin for a gallon of gas is only between 1 to 3 cents per gallon. However, what we’ve seen this week in the wake of the Iranian war is widespread opportunism that’s on display.
As recently as Monday morning, the average price for a gallon of regular unleaded gas in Florida was $2.88 per gallon. As of today, that price has risen to $3.24 per gallon, or an increase of 12.5%. Essentially what’s happened here is that the news media spent the weekend telling people that gas prices would be ‘surging’, so gas stations saw an opportunity to take advantage of the situation.
To be clear, there hasn’t been a vehicle that’s filled up with gas up to this point that was oil or refined fuel purchased after the onset of the Iran war – yet the retail pricing has reflected that type of pricing.
The time it takes for changes in wholesale oil prices, crude oil prices paid by refiners, to be reflected in the price of refined gasoline delivered to gas stations can vary, but the full process, from crude acquisition through refining, blending, distribution, and delivery, involves multiple steps and takes time to play out.
Here’s the breakdown of how that happens:
- Crude to refined gasoline: Refining crude oil into gasoline is a continuous process in most refineries, but the overall process generally takes as few as two weeks and averages four weeks
- Wholesale gasoline prices: When you have a quick increase in wholesale oil prices, it’s common for demand for wholesale refined gas to jump as gas stations seek to maximize their inventory at lower prices. Still, a gas station only has so much capacity, so the immediate impact is mitigated. The average length of time from the purchase of wholesale refined fuel, until delivery of the product is 4 days.
- Delivery to gas stations and retail impact: Once wholesale gasoline prices change, the time to delivery at stations depends on inventory turnover, delivery schedules (many stations receive fuel every few days), and retailer pricing decisions.
On that note let’s dive into the daily wholesale price changes of what’s known as RBOB Gasoline, Reformulated Blendstock for Oxygenate Blending. It’s the refined gasoline that’s set to meet U.S. environmental standards and what is most commonly what’s purchased by retailers. Here’s the daily wholesale price of that fuel:
- Friday 2/27: $2.07
- Monday: 3/2: $2.38
- Tuesday 3/3: $2.46
- Wednesday 3/4: $2.47
Clearly wholesale gas has been bid up this week. However, clearly the prices at the pump widely increased prior to any delivery of the more expensive fuel.
Overall, in a typical cycle, complete reflection of wholesale/crude changes in delivered gasoline prices and at the pump typically takes two weeks at the short end of the curve and six weeks at the long end based on market conditions. What we’ve seen happening this week is an acceleration of market conditions with massively increased margins.
Whereas the typical margin for a gallon of gas is one to three cents per gallon, based on pricing trends and timing that’s expanded to approximately 31 to 34 cents per gallon for those who’ve purchased gas since Monday morning this week. In terms of impact going forward...
We should soon see this trend abate because a) Iran will not be in a position to continue to militarily threaten the Straight of Hormuz, where approximately 20% of the world’s travels and b) the impact to the U.S. specifically is mitigated. China and other Asian countries are the recipients of almost all oil that travels through the Straight. Only approximately 600,000 barrels of oil per day make their way to the United States, or 2.9% of what’s used in the United States.
This reality has begun to quickly sink in as oil prices were lower yesterday, having topped out at prices we most recently saw last June. There’s been far more hype than actual impact in the oil market this week. That hype has commonly been taken advantage of short term at the retail level.