Ever paid for gas only to see it for 25 cents or less per gallon a few blocks away?
Experts and industry representatives told the Daily Independent this week about these discrepancies, listing some of the many factors that go into the price each station ends up charging at the pump.
Aldo Vazquez, a spokesman for AAA Arizona, reminds Valley residents that crude oil makes up the largest portion of the price of gasoline accounting for about 56% of the price.
“Distribution and marketing make up 13%,” Vazquez said. “Refining costs and profits make up 13% and federal and state taxes make up the final 17%.”
Fuel prices are falling Valley-wide for gas after peaking several weeks ago. West Valley drivers can expect to pay $4.52 a gallon, according to Thursday’s report from AAA Arizona. That’s down from a high of $4.73 a month ago, with the price over recent days trending downward.
Gas is the same price on average in Phoenix, but a cent cheaper in Peoria and cent more expensive in Glendale, according to AAA. East Valley residents are paying $4.59 on average, which was the same price displayed at many gas stations around the Sun Cities on Thursday.
Vazquez said areas with few gas stations tend to have price averages that are higher than larger metropolitan areas because there is less competition.
The Valley does not have the cheapest prices in the state. That distinction belongs to Tucson and Pima County, were prices are about 20 cents cheaper per gallon. The most expensive areas are smaller cities and towns like Flagstaff and Lake Havasu City, which are both above $4.70 per gallon.
But noticing a range of price discrepancies in the densely populated West Valley, drivers may question why prices would vary on opposite sides of a freeway, with easy right-turn access into both stations?
Aisha Jefferson-Smith, a spokesperson for QuikTrip, said price is often driven by the price offered by local competition — and QuikTrip locations are required by corporate management to remain competitive.
“QuikTrip and everyone else compete against somebody,” Jefferson-Smith said. “Whether down the street, across the street or somebody who may be in a particular driving pattern. QuikTrip stores might have different prices all over town, depending on the price of gas with competitors.”
Jeff Lenard, spokesman for the National Association of Convenience Stores, told the Daily Independent on Thursday that wholesale cost can have a massive impact on the price at the pump. This is where international turmoil — such as Russia’s recent invasion of Ukraine — in oil-producing regions can lead to a spike.
“The wholesale cost varies depending upon supply arrangements,” Lenard said. “When supplies are plentiful, those who are unbranded and don’t have a specific supply contract can often find good deals on the spot market, but when supplies are tight, they often pay more, sometimes much more, on the spot market Retailers that sell more fuel often enjoy a better wholesale price.”
Lenard said wholesale prices also can vary based on volume — both per store and for the overall company — and the length of the supply contract, and that applies to both stores that have branded (i.e., Shell, QuikTrip, Mobil, Chevron) or unbranded contracts.
“When there is extreme price volatility, the time and date that you place your order can make a big difference,” Lenard said. “This year, we have seen multiple days with 25-cent-per-gallon swings on the wholesale market. Simply placing an order for fuel a few hours apart from a competitor can put a single station at a significant advantage — or disadvantage.”
Lenard said in-store operations also might affect how retailers charge. Chains or mini-marts with robust in-store offerings are less reliant on gas margins to make money and might be able to adjust prices accordingly.
“For example, stores near an airport might not get a whole lot of business besides people topping off rental cars,” Lenard said. “Most people are already in a rush and don’t feel they have much time to go inside.”
Lenard said overall, retailer gross margins — the “markup” on gas — averages about 35 cents per gallon.
“After paying expenses, especially credit card fees, the average net margins is about 10 cents, maybe 15 cents per gallon,” he said. “So getting the best-priced fuel at the wholesale level makes it easier to be price competitive at the retail level.”
Lenard said fuel that carries the name of a major refinery tends to cost more because the company is providing other services to the business, whether proprietary market intelligence or marketing support, or is providing a recognized brand of fuel. A chain that markets itself as having, say, delicious food or inexpensive drinks for sale might charge more for gas, not necessarily trying to break even or turn a specific profit at the pump.
In some areas, a branded retail operator may receive a price discount so the brand is more competitive in that market, Lenard said.
He said there are other costs that might vary between stations of large branded chains versus small independent chains or stores — and might even vary from station to station.
“For example, let’s think about bank or credit card fees,” Lenard said. “For one station, that might account for 6 cents in every dollar of a gas price. For a gas station across the street, that cost might be far less.”
Jason W. Brooks is a News editor for the Daily Independent and the Chandler Independent.
He covers the Chandler area for both yourvalley.net and the monthly print edition while writing for and assisting in the production of the Daily Independent.
Brooks is a well-traveled journalist who has documented life in small American communities in nearly all U.S. time zones.
Born in Washington, D.C. and raised there and in suburban Los Angeles, he has covered community news in California, New Mexico, Arkansas, Iowa, Nebraska and northern Arizona.
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