.

How Do Gas Stations Set Their Prices?

The cost of crude oil isn't the only factor when it comes to determining what you pay at the pump.

  • CORRECTION: An earlier version of this story stated Speedway's owner was Marathon Oil. In late June, Marathon Oil and Marathon Petroleum Corporation split into two seperate, publicly traded companies with no business ties. Marathon Petroleum owns the gas station company. We regret the error.

Sometimes, the best story ideas come from readers. Take this email that came in this week:

I want to know why Orland Park, Orland Hills and Tinley Park can have cheaper gas prices than Mokena and Frankfort when they have an additional Cook county tax added to the pump price? Also New Lenox and Joliet also have cheaper prices for the same brands of gas than us. 

The question intrigued me, so I put in a call to Shane Pochard, spokesman for Speedway, . I asked him to explain the ins and outs of how his company determines what people will pay at the pump. 

How are prices set?

Pochard said Speedway sets the prices at individual stations based on a variety of factors, including the cost of crude oil and comparing the prices of competing gas stations.

According to the U.S. Energy Information Administration, what you pay for a gallon of gas is broken into four areas in approximately the following percentages:

  • Cost of crude oil: 66 percent
  • Refining costs and profits: 12 percent
  • Distribution and marketing: 11 percent
  • Taxes: 11 percent

How much money do stations make at the pump?

"Typically, we're making pennies on the dollar," Pochard said. "That's not where we focus our income potential. We try to drive people inside (to the convenience store)." 

Credit card swipe fees—what a business pays credit companies in order to accept customers' charge cards—eat into profits as well, Pochard said. And stations don't factor this into the price because they'd rather stay competitive, he added. 

How can stations owned by the same company in the same town vary in price?

This can happen for a couple of reasons, Pochard said. The most mundane explanation is that stations don't change prices at the same time.

A more business-minded reason is competition. A Speedway station in a part of town with competitive stations might keep its prices lower than another station across town that has no competition, Pochard said. Those competing stations are called "hyper-marketers," he added, and it's something the company keeps an eye on.

"If a hyper-markerter is (in the area), we have to lower our price to meet it," Pochard said. "We'll try to meet those prices. We want to be in a competive area."

Why don't gas prices drop immediately when the cost of crude falls?

"We get that question quite a bit," Pochard said. "The answer is that there's some lag time."

The gallon of gas you're putting into your car today was refined from crude oil bought months ago, he said. And that means you're paying for the rate of crude oil from months ago, not currently. Eventually, Pochard said, it evens out.

Editor's note: While reporting this story, I learned something interesting about the ownership of gas stations in Frankfort. Speedway, which is owned by Marathon Petroleum Corporation, owns and manages the majority of the stations in the village. The two other Frankfort stations are owned by and . And guess who owns Atlas? Marathon Petroleum. 

PLEASE VISIT the listings for Speedway stations, Circle K and BP Atlas Oil in the Patch Places directory.

Michael Sinks August 31, 2011 at 08:20 AM
Since the first of summer oil prices have fallen nearly 20% but the price at the gas pumps have fallen only about 5%. Where's the disparity? I also think that the gas companies will use any excuse for raising prices (broken pipe lines, hurricanes, the war in the middle east, etc.), wish I could use some of these excuses when it comes to paying my bills.
Dan September 02, 2011 at 07:37 PM
Once again bought gas at the Speedway Lockport in Will county for ten cents per gallon cheaper than our area Speedways was pricing it at. Does not make any sense as to why are our local area of Frankfort, Mokena and New Lenox is consistantly being asked to pay more than other areas. To my knowledge the Lockport tax rate is the same as ours
Nature Lover September 07, 2011 at 03:02 AM
The gas stations in Frankfort are not the only businesses that charge higher prices than neighboring communities. McDonald's restaurants in Frankfort also charge higher prices for many of their menu items compared to other south suburban towns.
Joe Vince September 07, 2011 at 03:55 AM
@Munchkin: I'm going to have to check that out about McDonald's. Also, the <a href="http://frankfort.patch.com/listings/gas-city-station-45">Speedway at 22310 S. LaGrange Road</a> has the cheapest gas in L-W and most of the surrounding area (Monee excepted) at $3.84. Joe Vince Local editor, Frankfort
Steve Burke September 07, 2011 at 04:21 AM
I have no clue. I just know the Shell station in Homewood does not actually want to sell gas given the prices they sell it for (about $.25/gal above market). In fact, they are often out of gas. How do they stay in business?

Boards

More »
Got a question? Something on your mind? Talk to your community, directly.
Note Article
Just a short thought to get the word out quickly about anything in your neighborhood.
Share something with your neighbors.What's on your mind?What's on your mind?Make an announcement, speak your mind, or sell somethingPost something
See more »