FMANJ members distribute branded and unbranded gasoline to approximately one-third of the service stations in the state, as well as motor fuels to numerous other accounts such as trucking companies, farmers, contractors, bus companies, government entities and marinas.
The gasoline prices in NJ are determined by a marketplace that is just as competitive as the heating oil marketplace. The state is served by major interstate pipelines, ocean borne tankers, four petroleum refineries, numerous distribution terminals and thousands of service stations.
There are nearly 3,000 retail gasoline outlets in New Jersey competing fiercely for your business.
No other industry advertises their price on 50-foot signs on a daily basis! The price motorists pay at the pump is determined first and foremost by local market competition. However, these prices are directly based on activity on the New York Mercantile Exchange, where the “future” market price for gasoline can change anywhere from a few pennies to as much as a quarter per gallon in one day.
This “future” price then establishes what the cash, or spot, price paid by service station owners is.
In high-priced environments, such as today’s current market, service station owners are as upset with high prices as motorists are. The companies that supply service station owners can change prices as often as they wish, while service station owners are only allowed to change the price once in a 24-hour period.
Unlike most other retailers who work on a percentage mark-up basis from wholesale, gasoline service station owners work on a cents-per-gallon basis. When prices increase, they don’t make any more profit. As a matter of fact, when gasoline prices are increasing, service station owners generally make less money since they must respond to competitive market conditions. When prices decrease, service station owners attempt to recoup their losses. However their competitors may lower prices faster in hopes of attracting more customers.
Credit cards are ubiquitous in today’s society. As a result, service station owners now routinely offer customers the option to pay by credit card.
Unlike service stations, which work on a cents per gallon basis, credit card processing fees are a percentage of the total sale. Therefore, when prices increase, banks make more money. On average, credit card processing fees are 2%. For example, on a $3.50 per gallon sale, the bank makes almost 9 cents … There are times that the bank is making more in its credit card fee than the service station owner is in gross profit!
In an effort to increase profitability and share the savings with their customers, some service station owners opt to charge different prices for cash vs. credit card transactions.
What’s the difference between “branded” and “unbranded” gasoline? All gasoline, regardless of the “name” associated with it must meet regulatory standards for performance. Therefore, all 87-octane gasoline is the “same.” However, companies seek to differentiate their brand of gasoline through the use of additives and other proprietary measures. It’s like different brands of soda and ultimately consumers determine their preference.
A gasoline refiner’s first objective is to insure the distribution of their product through their branded network. Once these needs are met, they sell their excess gasoline (minus proprietary additive packages) to the “unbranded” market. In times of tight supply, the unbranded gasoline market becomes severely restricted. Product may not be available or, if it is, it will generally be priced at significant premiums.
Why does a gasoline station raise its price when they still have gasoline in their storage tanks? Perhaps a better question is: Why does a gasoline station lower its price when it has higher priced product in its tank?
While some service stations may offer other services, the primary product sold is gasoline. When prices are on the rise, a station owner needs to prepare to purchase the next load of more expensive fuel, i.e. replacement cost. Conversely, when prices are falling, and a competing station has already received delivery of the lower priced fuel, a station owner needs to stay competitive and lower prices even though there is higher priced inventory in the storage tank.
Why are diesel prices now higher than gasoline prices?
Historically, diesel fuel has been less expensive than gasoline. This was due to the fact that diesel fuel required less refining than gasoline. Over the past few years, there have been significant regulatory requirements lowering the sulfur content of diesel and requiring additional refining distribution and storage capabilities. Today’s U.S. standard of 15ppm sulfur diesel fuel is the most stringent in the world.
While this is an important factor, the primary reason for the dramatic increase in diesel fuel prices over the past few years is world demand. The United States is the only market in the world whose transportation sector for passenger automobiles is, and will be for the foreseeable feature, gasoline oriented. Estimates of all diesel-powered new cars in Europe range from 50-75%. When a weak U.S. dollar is coupled with strong worldwide demand, manufacturers are incentivized to ship their fuel where they will get the highest return.
You can save $200-$1,500 in fuel costs each year by choosing the most efficient vehicle that meets your needs. This can add up to thousands of dollars over a vehicle’s lifetime. Fuel-efficient models come in all shapes and sizes, so you don’t have to sacrifice utility or size.
You can also increase the fuel economy of you current vehicle by adopting good driving habits and maintaining your vehicle.