Gasoline prices are oddly volatile in St. Louis, and they tend to follow a pattern. A smart customer who understands that might save some money.
For proof, take a look at the chart that accompanies this column. It shows daily price changes at gas stations nationwide, in Kansas City and St. Louis, as recorded by the price-tracking service Gasbuddy.com.
Nationally and in Kansas City, prices tend to move fairly smoothly with the wholesale price of gasoline. That’s how it is in most places.
But notice the sawtooth pattern here in Mound City. St. Louis prices are jerky — up sharply one day, then down slowly over the next few, up sharply and repeat.
“Prices are moving at the retail level no matter what wholesale prices are doing,” says Patrick DeHaan, senior petroleum analyst at Gasbuddy, who has tracked the phenomenon.
A customer smart enough to spot the bottoms of that pattern could save a dime or more a gallon, according to one recent study. So, let’s see how the system works.
Economists call this an Edgeworth Price Cycle. It shows up at gas pumps here and in some other cities, mainly in the Midwest. It seems that pump prices here are driven by two independent factors — wholesale gasoline prices, and the particular mix of gas station competition in St. Louis.
Economist Michael D. Noel of Texas Tech University has studied the phenomenon in the U.S. and in Australia. To get a price cycle going in gasoline, it takes a market with some larger, centrally controlled gasoline chains, Noel says, along with one big chain willing to pull the trigger on a price increase.
In St. Louis, that’s QuikTrip, with more than 70 stations. “In your market, we’d call it the QuikTrip effect,” DeHaan says. DeHaan and Noel say they generally find a big QuikTrip or Speedway presence in cities with sawtooth pricing.
Many gas stations are franchises where the owners set their own prices, no matter which brand is on the big sign. Mom-and-pop operations tend to be price followers, not leaders, Noel notes. But the larger station chains are brutally competitive — and we drivers get the credit.
“When consumers are willing to switch for a penny or two, it’s in the station’s best interest to go down a penny,” Noel says. In fact, prices only drop a penny or two at a time as the cycle progresses. It’s quick going up, and slow going down.
But down they do go until the retail price hits the wholesale price — erasing any profit and leaving station owners to live off soda sales and car repairs. “It’s really unsustainable,” Noel says.
That’s when the big chain pulls the trigger and raises the price sharply. Competitors cheer and quickly match it.
“QuikTrip raises. Competitors follow several hours later. Then QuikTrip will undercut the newly increased competition,” DeHaan says. Round goes the cycle again.
The difference between the bottom and top is often a dime or more.
Asked if QuikTrip was leading St. Louis price changes, company spokesman said Mike Thornbrugh that stations are sometimes operating at “zero” margin, selling gas for what they paid for it.
So, can a consumer play this phenomenon to save some money? Noel tried to answer that question, using data from Australia.
The best way is to be quick about it, Noel says. As soon as you see one big-chain station make a jump, scoot to a competitor that hasn’t moved yet. If you make it on time, you’ve hit the bottom of the price cycle.
“You know it will be only a couple of hours, a day at most, before the other stations are up,” Noel says.
Another way is to wait a few days after the big jump, hoping you’ll be filling up around the bottom.
Timing would be easy if the cycle followed a calendar, but it doesn’t. DeHaan thinks it probably averages somewhere around eight or nine days from top to bottom in St. Louis, but it varies pretty widely. It’s shorter in the summertime, and longer in the fall.
Bottom-timers have to figure that a big swing in wholesale gasoline prices, either up or down, could throw the cycle off-kilter. A higher wholesale price will mean a quick increase, while a lower wholesale price might simply stretch out a price decline.
It’s hard for most people to find wholesale gas prices, but oil prices are a pretty good substitute most of the time. You can find oil prices on the Post-Dispatch Business pages, among other places.
In Noel’s study, the waiting method worked, although the jump-quick method works better. In his Australia study, he found that a sharp customer would save the U.S. equivalent of 11 to 15 cents a gallon.
Services such as Gasbuddy will send out price alerts to people who sign up, giving them a jump on the cycle.
QuikTrip’s Thornbrugh notes that “millions” of factors can push around gas prices, besides local competition, and others agree. A spate of refinery problems sent prices seesawing in late summer, he notes.
St. Louis uses reformulated gasoline to reduce pollution, and wholesale prices for that can differ from gas used elsewhere, notes Ron Leone, executive director of the Missouri Petroleum Marketers and Convenience Store Association.