The Herald Bulletin

October 23, 2013

Competition causes local gas prices to 'cycle'

Officials say prices will fall as weather gets colder

By Traci L. Moyer
The Herald Bulletin

ANDERSON, Ind. — The topic of gasoline prices tends to draw strong opinions, especially when the going rate varies from county to county, city to city and state to state.

“I don’t care what they say,” Barb Haynes of Anderson said about gas prices. “That’s price gouging.”

On Wednesday, gas prices around the city were between $3.39 and $3.49 a gallon. Those prices are down almost 10 cents from Monday, when prices were $3.49-$3.55 a gallon. In the Indianapolis, Carmel and the Fishers area, gasoline is selling for $3.21-$3.29 a gallon. And the national price for fuel varied from a low of $3.02 a gallon in Missouri to $4.11 a gallon in Hawaii.

Patrick DeHaan, senior petroleum analyst at GasBuddy.com in Chicago, said the irregularities in gas prices are often attributed to fierce competition between gas stations.

That competition results in "price cycling," which starts when stations slash prices to undercut local competitors. Before long, the gas station is selling its fuel for less than what the it paid.

According to DeHaan, consumers can see prices jump 20-30 cents in a day when retailers stop operating at a loss and start to sell gasoline at a profitable price.

“One of them says, 'Enough of this – I’m not making money,'” DeHaan explained. “When that happens, prices tend to jump very quickly.”

Price cycling can create rates that vary according to state, region or community.

Indiana is sometimes cited as the most volatile state when it comes to gas prices, with Ohio and Michigan close behind, DeHaan said. On average, he said, gas prices in Indiana move up or down each day by about two cents.

He stressed common sense, noting that when gas prices spike, people should buy only what they need, secure in the knowledge that prices will soon fall.

Scot Imus, director of the Indiana Petroleum Marketers & Convenience Store Association in Indianapolis, said it is unfair to take a snapshot picture of gas prices in a community on any one day and then compare it to other communities.

“Georgia has a very low tax on gasoline when compared to other states,” Imus said. “And if you compare us (Indiana) to Kentucky, who does not have a seven percent tax, they are cheaper than us.”

Imus also said gas prices are heavily regulated and insisted that rates are not excessive anywhere in Indiana.

“It is a mystery to some people, but there is nothing more transparent,” he said of fuel prices. “You can do the math and see what the retail price is. When I am buying a gallon of milk I don’t know what has gone into it before it goes to the market, but it is not uncommon for a retailer to get wholesale prices and not be able to pass them on to the consumer immediately.”

Imus noted that the market is so competitive that if managers of another company thought they could come to Indiana and make a profit selling gasoline at lower prices, they would. But that isn’t happening.

He agreed with DeHaan about the volatility of gas prices in Indiana, but he said it actually works in the consumer's favor — since motorists are sometimes buying gasoline at a price below profitability for gas merchants.

Victoria Davis, Anderson, said she uses gas coupons issued from supermarkets to save money.

“Indy is usually a little cheaper,” she said. “We try to fill up when we are there.”

DeHaan predicted that motorists will experience some relief in the next few months as the demand for gas will drop and prices could fall to about $3 a gallon.

“There is less consumption,” he said. “You know when the time changes, and you spring forward in the spring and fall back in the fall? It’s the same for gas prices. When the cold weather hits, people don’t want to go places, and it helps to build the gasoline supply.”

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