Why Are Gas Prices Different In The Same Town?

by Deborah Horn

Gas futures went negative while we were still paying at the pump, but those prices varied widely across communities within Oklahoma.  Why does the price consumers pay for gas change within cities and what role does the global oil market play on the pump prices?

“The more options available, the more likely (we are) to see lower prices,” Craig Dawkins, the Associate Dean of the Business and Information Technology Division at Rose State College, said.

Dawkins said part of the difference in gas prices within cities is a supply and demand issue.  In areas where there are more travelers, such as near an interstate, you can expect to pay more for gas.  However, as the demand increases with multiple gas stations competing for business, prices can drop.

“Production costs differ based on where gasoline is produced, and the number of suppliers to a region,” Dawkins said.

Adding to the already volatile nature of oil pricing, the government shutdowns inadvertently created a demand shock, and supplies kept going into storage.   

This created a new problem as the country ran out of storage space for all that oil.

“With people sheltering at home and driving much less, lower prices have not been able to induce more driving,” Dawkins said.

At the end of May, oil prices made headlines when contract prices went into negative territory. 

Because demand for oil dropped so suddenly, companies tried to exit their contracts because they did not want more oil, in part because they were out of storage space to store excess oil.

“Prices were negative on May 20 futures contracts due to a market anomaly related to an oil futures ETF that caused prices to go negative while trying to exit trades on futures contracts about to expire,” Dawkins said.

With oil futures in a more stable position, prices have begun to stabilize.  However, you will still see fluctuations in prices from day-to-day and even city-to-city within the same state.

One other reason why different stations have price differences is the type of fuel being sold.  Stations selling gas without ethanol blended into it have higher prices.  And even among ethanol stations, the amount of ethanol blended into the gas varies by season.

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