The seats were filled and members of the community eagerly awaited the start on the discussion of gas prices yesterday evening. Scott Imus, Executive Director of the Indiana Petroleum Marketers and Convenience Store Association, explained some of the main factors that drive gasoline prices at the pump.
According to Imus, the commodity market is mainly to blame for the price of fuel. Imus said that never has there been more speculation and investment in oil markets. Imus says that crude oil supplies are at a five-year high and oil demand is down, but crude oil prices have rocketed to $110 a barrel in April, up from $85 a barrel in Feb.
Imus also said that most of the time, gas stations are selling gas at a loss because of credit card fees and taxes. Indiana is one of seven states that still taxes gasoline. When stations sell their gas below cost for several days, they are forced to jack the price back up in order to make up for their losses.
Gas stations sell gasoline as cheaply as possible in order to lure people inside the store to buy other products. Over 70% of gas station income is from items sold inside, not gasoline. This means that gas stations will have to always match their competitor’s price in order to continue drawing customers inside, causing them to sell fuel at a loss if that’s what the competition is doing.
But what can be done about these prices, and this rollercoaster effect we see with prices? Imus says there isn’t much, but a law could be passed to prevent gas stations from selling gas below cost. This would solve the rollercoaster effect, but it would cause gas prices to be consistently higher. Changes could be also made to the way credit card fees are applied to transactions.
So contrary to popular belief, gas stations aren’t gouging prices at the pump. In fact, it’s quite the opposite: Most of the time, they’re selling the gasoline at prices that cause them to lose money in order to draw people inside the store. This is not a very sustainable business model for retailers, but it’s the only one they currently have. Until investors stop speculating and investing in crude oil, the price is going to continue fluctuating madly, but Imus said it isn’t a pipe dream to think gasoline could drop below $3 a gallon someday.
