Meadville Tribune

Local News

July 11, 2014

Numerous reasons explain why Meadville's gas prices at times highest in region

MEADVILLE — During periods from April to June, the Meadville area held the highest average price for unleaded self-serve gasoline over at least 20 other metropolitan areas in western Pennsylvania, including Pittsburgh and Erie.

AAA reports indicated that while the Mercer city area held the highest average gas prices for the most weeks since January, the Meadville city area had the highest average prices for at least five weeks.

Meadville’s highest average weekly prices this year have hit around $3.89 per gallon, mere cents under the area’s record price of $4.04, reported in July 2008.

Almost all of Meadville’s average prices recorded this year are higher than last year’s by as much as 40 cents per gallon.

Pennsylvania residents experienced higher prices at large since a gas-tax increase took effect Jan. 1, according to David Poor, president at AAA East Central, who said the state can most likely expect another tax increase by January 2015. Poor believes January’s tax increase translated into about 10 cents more per gallon at the pump.

“People need to keep in mind that taxed wholesalers probably pass it on, and some are not passing it on as quickly,” Poor said. “That could be why you have differential (pricing) in Meadville.”

For competitive reasons, gas providers don’t usually disclose pricing information such as how much of the crude oil or state tax increase is being passed to consumers at a given time, Poor added.

Price differences between areas in the same region could also be contingent on when stations purchase gasoline and from whom.

“If there’s five or 10 different suppliers, which I’d say is about average, for a terminal, you have about five different prices,” said Patrick DeHaan, senior petroleum analyst for gasbuddy.com, which oversees pennsylvaniagasprices.com. “Then, those prices change as many as two times a day.”

In the case of Iraq, when wholesale prices go very quickly, depending on a station’s timing, the station may have spent a theoretical 10 to 30 cent difference per gallon between suppliers and determined its own prices accordingly, he said.

Additionally, some suppliers may be short on supply during a given time, causing a potential increase in selling prices to reflect demand.

Suppliers are usually categorized as branded or unbranded, depending on their size with larger, more prominent oil companies representing the branded market.

“All branded suppliers charge more,” DeHaan said. “The reason is because they’re guaranteed to be supplied first.”

After a refinery sells to branded suppliers, it can sell at a lower cost to unbranded suppliers to encourage their purchases.

“If a refinery were to catch fire, suddenly the leftovers don’t exist and whoever usually buys them either pays a much higher price or has nothing to sell,” DeHaan said.

Theoretically, in one market, everyone’s paying a slightly different price, which sometimes can amount to 10 or 20 cent differences per gallon between gas stations, he added.

Stations may also determine prices based on factors such as location, property tax and whether their property is rented or leased, DeHaan said.

Another major piece of the pricing puzzle is a state’s gas tax, according to Gregg Laskoski, senior petroleum analyst for gasbuddy.com, who reported Pennsylvania residents currently pay about 60 cents per gallon in combined state and federal taxes, above the national average of 49.7 cents.

“In many states, legislators are wrestling to make up for a shortfall in federal funding for highway infrastructure,” he said.

The apparent shortfall resulted from Americans driving less overall and with more fuel efficient vehicles than in the past five to 10 years, Laskoski added, creating a deficiency in federal gas taxes, which used to be sufficient when collected for roads.

“The federal government is shifting the burden to the states to make up the difference,” he said.

Other factors that have significantly impacted gas prices include the global crude oil market and geopolitical events, such as unrest in the Middle East.

“The most obvious is the price of crude oil,” Laskoski said, “because global prices are increasing, then pump prices increase as well and that’s really what we’ve seen in the past (few) weeks.”

The price of West Texas Intermediate crude oil was recorded at approximately $103 per barrel Wednesday. Late last month, the price closed at over $107 per barrel, a relatively high price related directly to problems in Iraq, according to Laskoski.

“We always watch situations in the Middle East, geopolitical events; anything of that nature can cause an increase in crude oil prices,” he said.

Timetables for overseas conflict resolution are only speculative, but if crude oil prices remain the same or increase, a correlated increase at the pump is most likely to occur.

The reason Iraq is such a prominent factor in the U.S. and global market is its rank as fifth largest proven oil reserve in the world, according to AAA, which lists Iraq as the “second largest producer of crude oil in the Organization of the Petroleum Exporting Countries.”

Previous AAA reports indicated markets are likely to continue monitoring Middle Eastern conflict closely.

If there’s any silver lining in the looming cloud of potentially growing gas prices, it’s that the U.S. is currently holding a strong position in terms of the global market with domestic production at its highest since the 1960s, Laskoski said.

“We have access to lower cost crude from Canada and North Dakota, an absolute boom in production,” he said. “We’re also seeing cheaper crude coming out of Texas. All that supply does help to soften the blow when things occur in the Middle East.”

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