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Gas stations benefit from low oil costs

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So you think you are finally getting one over on the gas stations as you pay well under $3 a gallon for the first time in four years? Guess again.

Gas stations love low prices too — and not just because customers are nicer when they are paying less.

“We’re in the same shoes as the consumer, the cost of fuel is less for us,” says Kevin Beyer, who owns Performance Fuels, a filling station and convenience store in Smithtown, N.Y. 

That means profits for Beyer and the nation’s 127,000 filling stations are rising. 

Before they sell gas to you, station owners buy gas on the wholesale market. When the wholesale price of gasoline falls quickly the difference between wholesale cost (including taxes) and price at the pump widens, boosting profits for stations. The steeper the drop, the better.

“It’s completely antithetical to what people believe,” says Tom Kloza, chief oil analyst at the Oil Price Information Service. 

That difference has stretched to 21.7 cents per gallon this year, the highest ever, according to an OPIS analysis of 16,000 U.S. stations. That compares with an average of 17.1 cents over the last five years. On a percentage basis, station profitability is at its highest since 2005. And profits on diesel sales are even higher. “They are off the charts,” Kloza says.  

Yes, that means you could be paying even less for gasoline than you are. 

But before you cry foul, you should know that after all the ups and downs in a year, gas stations do not make much money selling gas. After credit card fees and other costs, net profit averages 3 cents a gallon, according to the National Association of Convenience Stores.

When gas prices soar, and drivers think they’re being gouged, stations are barely scraping by or even losing money. When the wholesale price is soaring, as it did in 2008, 2011 and 2012, station owners can’t increase prices as fast as their costs are going up or they risk losing customers to competitors.

When the wholesale price drops, there isn’t the same pressure to lower the price.

Drivers are so happy to see lower prices they don’t search all over town for the lowest one. And then they fill ‘er up instead of just putting in a few dollars’ worth. They even have money left over to spend on what’s really profitable for station owners: the drinks and snacks inside. 

“As the pricing goes down, I don’t see people shopping (for the cheapest price) as much as they do when it’s going up,” says Beyer. “They are still feeling a relief at the pump.”

As a result, he adds, “People are more friendly.”

The national average price of gasoline has fallen 78 days in a row to $2.60 a gallon — 65 cents less than last year at this time and $1.10 below this year’s peak of $3.70, reached in April. 

It’s fallen in Hawaii and Alaska, too, but not as much as the 48 contiguous states. In Hawaii, which still has the highest prices, the average on Friday was $3.75 — down 18 cents from $3.93 a year ago. In Alaska, the average on Friday was $3.41. Then there’s a big drop in New York at No. 3 at $3.02. All the other states are below $3.

Gas has fallen because the global price of crude oil has dropped 45 percent since this summer. The U.S., Canada and other countries are producing more oil at a time when world demand is weak because of sluggish economic growth. 

This has drained profits and knocked down the share prices of oil producers — the exploration and production divisions of the big oil companies such as Exxon Mobil and Chevron, and companies such as ConocoPhillips and Marathon Oil.

Gas station owners, though, are thrilled. The vast majority of stations are owned by small independent operators, even if the sign out front says Exxon, BP or Shell. 

“The big inning (for gas stations), which started after Labor Day, is going to extend through Christmas,” Kloza says.

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