LIMA — So you read all the information about the dwindling gas prices dwindling. Early Monday, gasoline for $1.95 a gallon could be found at the Speedway on Harding Highway in Lima. The Marathon station in Wapakoneta had gas for $2.04 and the Shell station in Ottawa was $2.07. Speedway and Circle K in Delphos had gas at $2.15.
Gasoline prices in the region were generally lower than the state average of $2.14 a gallon and average retail gasoline prices in Ohio have fallen 15.1 cents per gallon in the past week, according to GasBuddy’s daily survey of 5,345 gas outlets in Ohio on Sunday.
Then, out of nowhere, prices climbed 30 cents a gallon as quickly as they fell. Was the market incorrect? Is it gouging?
Actually, the cause is part of phenomenon in Midwest states called “price cycling,” where gas goes through a sharp price increase followed by more gradual price decreases.
GasBuddy.com senior Midwest Petroleum Analyst Patrick DeHaan explained price cycling, which affects all Midwestern states, especially Ohio, Michigan and Indiana.
“Companies tend to operate on a 25-cent profit margin on a gallon of gas,” DeHaan said.
However, in the Midwest prices tend to be more volatile because of the cycling. One company will drop a cent in price to be lower than another gas station in the area. The other station in turn drops 2 cents. The cycle continues until gas stations are operating from a minus-cent margin to a break even point. Gas stations will then reset their prices to a 25-cent profit margin, which can lead to temporary 30 to 40 cent spikes because of the highly competitive market.
DeHaan said that one company in particular tends to lead the “cycle,” but would not name it. However, a 2010 report from the Federal Trade Commission does.
According to a 2010 report from the Federal Trade Commission’s Bureau of Economics, which studied gas pricing in 350 cities nationwide from 1996 to 2007, found that recent price cycles began in 2000 and generally occur in Illinois, Indiana, Kentucky, Michigan, Minnesota, Missouri, and Ohio. The report identified Speedway as having a history of leading price increases in the Midwest, up to 20 to 40 cents in one day. Unlike other gas stations that are franchised and run by individual owners, all Speedway stations are corporately owned and controlled. The term has been deemed by some in the industry as the “Speedway effect.”
However, while the cycle does lead to a big spike, consumers also can benefit from the cycling, which results in even lower gas prices than average. DeHaan said the cycle again repeats itself, as the competition resumes as soon as the price spike is applied until prices fall again, typically on average of about 2 to 4 cents a day.
“It is actually very predictable,” DeHaan said.
DeHaan added that consumers can watch for the spikes and maybe refrain from filling up until prices begin to fall again. An application on GasBuddy.com actually notifies consumers when a spike is about to start.
“Maybe just put a couple gallons in and then take advantage when the prices drop again,” DeHaan said.
Without taking cycling into effect, gasoline prices could fall another 10 to 12 cents a gallon in the next month, according to GasBuddy.com.
“As refineries finish up their planned and in some cases unplanned (notably in the Midwest) rounds of maintenance, gasoline should return to the pumps at very high levels. That, coupled with the lower demand that comes with the fall season, should push November retail prices to fall another 10 to 12 cents,” said Jeff Pelton, GasBuddy’s senior petroleum analyst for the Northeast.
The cheapest place in the state to by gasoline Monday morning was Thortons in Hamilton, which posted a price of $1.83.
Including the change in gas prices in Ohio during the past week, prices Sunday were 80.1 cents per gallon lower than the same day one year ago and are 6 cents per gallon lower than a month ago. The national average has decreased 8.5 cents per gallon during the last month and stands 83.9 cents per gallon lower than this day one year ago.