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Location, competition and volume all play a role in gas prices

February 12, 2019

A spokesman for one of the largest gasoline providers in the area said transportation costs, wholesale gas prices and competition are the three main factors that contribute to the cost of fuel at the pump.

Most gas station corporations that set prices in Somerset wouldn’t comment for this article, but one did. Nick Ruffner, spokesman for Sheetz, explained what his company’s position is on the matter.

The Altoona-based corporation operates three gas stations in Somerset alone and one in both Meyersdale and Windber.

“Sheetz is committed to offering competitive gas prices at each of its 588 store locations,” Ruffner said.

“Prices are set in each market based on a number of factors including transportation costs, the wholesale price of gasoline and competition in that area.”

Gas prices along the Pennsylvania Turnpike are generally higher than in communities farther north on Route 219. Last week, the Sheetz along North Center Avenue in Somerset Township sold gas for $2.59 per gallon. The Sunoco along Franklin Street in Johnstown sold it for $2.38. It’s a roughly 30-minute drive between. Donegal, in nearby Westmoreland County, sold it for $2.59, according to GasBuddy, an online database that tracks prices throughout the country.

According to the U.S. Energy Information Administration, gasoline prices vary over time and among states and regions. In addition to differences in state and local taxes, other factors contribute to regional differences in gasoline prices, including distance from supply, supply disruptions, and retail competition and operating costs.

According to the National Association of Convenience Stores, an organization that studies gasoline sales and production, wholesale costs for retailers in a given market may vary by 10 or even 20 cents per gallon. Retailers don’t necessarily pay the same wholesale prices for a variety of reasons.

Volume is the first. Like in any business, there are volume discounts. Those selling more fuel likely have a better wholesale price. Brand also matters. Fuel that carries the name of a major refinery tends to cost more because the company is also providing other valuable services to the business, whether through market research and support or in providing a recognized brand of fuel.

Competition also plays a role. In some particularly competitive market areas, a branded operator may get a price discount so that the brand is more competitive in that market. That market area may be as small as an intersection, and retailers outside of that area may have higher wholesale costs for the same brand.

And finally, real estate matters. The cost to acquire real estate is higher at sought-after convenient corners. A retailer at one of these locations typically is paying much more than someone on the outskirts of town.

Jeff Lenard, spokesman for the organization, said it was most likely competition that accounted for Somerset County’s price differential.

“It’s one of those things, 39 million fill up every day. It’s something that everyone knows the gas price. It’s not like milk, bread or eggs. You drive by it,” Lenard said. “The reason distributors are so transparent is because people need fuel.

“They can’t decide to put another liquid in their tank. It can be frustrating for consumers when prices aren’t the same in every area. But most likely it’s related to levels of competition. In some areas, they may just be breaking even. I don’t know more about the specific area than that.”

Gasoline prices tend to be higher the farther the source of supply is from where gasoline is sold because transportation costs increase when the distance from the source of gasoline supply increases. These supply sources include refineries, ports, and pipeline and blending terminals.

Competition and operating costs also play a role in pump prices. Gasoline station pump prices are often highest in locations with fewer gasoline stations. Even stations located close together may have different traffic patterns, rent and sources of supply that influence pricing.

Patrick DeHaan, senior petroleum analyst for GasBuddy, said some competitors in Johnstown appear to have undercut others to attract more customers. He compared the situation to two rival grocery stores slashing prices to make the same group of people come to their facility instead of the other option. The other possibility is that Somerset’s stations raised prices before the other ones that inevitably will follow suit because of the same market conditions.

“I wouldn’t consider $2.59 price gouging,” DeHaan said. “That would be something that is egregious. That price doesn’t meet that criteria. It’s kind of a gray area for lawmakers though. $2.59 does pass the sniff test of something that I wouldn’t consider price gouging.”

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