Ever wondered why the mini mart raises gasoline prices, even though you know they bought the gas at a lower price? Shouldn't they sell it for the same price they bought it?
Unfortunately, the economics of gas make that impossible. When gas prices rise, station owners will have to dole out more to replenish their reserves. That means they need to raise more money now on the gasoline they have.
Here's why (in this example, we'll ignore taxes, which don't change day to day):
Suppose a convenience store buys 10,000 gallons of gasoline for $1 a gallon, or $10,000 in total. On top of the $1 gallon, they add expenses (cost of pumps, loans, repairs, credit card fees, infrastructure, property taxes, permits), raising the cost of gas to $1.20.
Next, they add profits, but not nearly as much as you might think. IBISWorld found that gas stations enjoy a profit of only 1.4% from fuel. So about 2 or 3 cents, raising the price at the pump to $1.23. Add it all up, and they'll pull in $12,300 or so in revenue, with a profit of $300.
But one day, wholesale gasoline prices spike to $1.50 a gallon. The mini mart will have to pay $15,000 to refill its reserves. But at the current price of $1.23 per gallon, it will only raise $12,300, leaving them $2,700 short and with no money for expenses or profit.
So instead of basing gas prices on what they paid, gas station owners price it according to the daily market. With gas prices at $1, they might sell 5,000 gallons at $1.23, bringing in $6,150. Tomorrow, gas prices spike to $1.50. That means their last 5,000 gallons must add up to at least $8,850, or $1.77 a gallon. At that price, they can refill their tanks, but they still don't make money or pay expenses.
What if wholesale gas prices suddenly drop? Gas prices will decrease, but slower than they rose. The mini mart has an incentive to lower prices to lure you to their pumps. Mini marts actually make 70 percent of their profits from in-store sales (candy bars, soda) according to The Hustle. At the same time, market prices are a gamble. The mini mart must cut their price enough to be competitive, but still be able to buy more gasoline, and they don't know what that will cost. Instead of slashing their prices overnight, stations undercut each other by a few cents, steadily decreasing prices.