Myths & Facts about Gas Prices

WHY DOES GAS COST SO MUCH?

The high price of gasoline is very frustrating.  We understand.  We are drivers too.  Here is some information to help you separate fact from fiction on why gas costs what it does.

Myth:  Most of our oil comes from Middle Eastern Countries.

Fact: According to the latest Department of Energy data, the U.S. imports more oil from Canada (21%) than from any single country.  Canada and Mexico provide a total of 40% of all the oil imported into the U.S.  The Persian Gulf countries combined (Iraq, Kuwait, Saudi Arabia, etc.) only supply 21% of the oil imported.  Here in Montana, none of our gasoline comes from Middle Eastern oil.  Not one drop.

Myth:  Oil companies drive up the price of gas in the spring to take advantage of the summer driving season.

Fact:  In the springtime, refineries have to switch from winter blend to summer blend gasoline, in accordance with EPA requirements.  The conversion must be completed by May 1st.  This means they stop mixing gas with butane, which evaporates in warmer temperatures, and replace it with more expensive ingredients.  Because butane is cheap, winter blend gas is cheaper than summer gas.  Also, supplies run short as the refineries sell off the winter product and transition to the summer blend.  The short supply, more expensive ingredients and increased demand due to more vehicles on the road generally will result in higher prices in the springtime. 

Myth:  Retailers immediately raise gas prices when oil prices increase, even though they are selling older, cheaper inventory.

Fact:  The current run-up in oil prices began in late February.  From February 22nd through March 4th, the price Town Pump paid for gas increased 23 cents per gallon.  During that same time, our average retail price increased only 13 cents per gallon; therefore we only passed 56% of the increase on to consumers.  Furthermore, most of our stores take delivery of regular no-lead inventory at least twice a week.  Busier locations turn their inventory daily, thus disproving the common misconception that we have locked in our inventory at a cheaper price.

Myth:  Retailers use any excuse, including the current Middle East unrest, to justify running up the price and gouging customers for more profit.

Fact:  Speculation about the unrest in the Middle East may cause the oil traders on Wall Street to run up the price, not the retailers.  Despite the skyrocketing pump prices, Town Pump's statewide average price for regular no-lead is currently 26 cents below the national average. 

Retailers like Town Pump do not like high gas prices.  Higher gas prices do not produce a higher profit margin on fuel sales.  Factoring in the corresponding spikes in drive-offs and thefts, you can clearly see that high gas prices are a lose-lose for Town Pump and the customer. 

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What does go into the price of a gallon of gasoline?

68% price of crude oil - for every $1 change in a barrel of oil, the price of gasoline changes approximately 2.5 cents

14% taxes

10% post-refinery - includes freight to haul it to the store, credit card fees, operating expenses (general and administrative costs)

7% refinery

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When you can separate myth from fact, you can see that Town Pump has very little control over the price of gas.  In reality, we constantly strive to strike a delicate balance between competing in the marketplace and covering our costs through all the ups and downs in the petroleum industry.