What gives on gas?

• Gas prices

Gas prices

Talk about it

Gas prices continued to drop Monday as the average price for regular unleaded in Grand Forks fell to $3.70 per gallon.

The average price for a gallon of regular unleaded gas Monday in Grand Forks was 3 cents cheaper than the day before and 4 cents less than a week earlier, according to a national survey of gas stations.

Despite the recent drop in local gas prices, average gas prices in Grand Forks are still a whopping 89 cents higher than a year ago. Grand Forks prices are above the national average of $3.67 per gallon and are more than 10 cents per gallon more than Fargo’s average price of $3.59 per gallon, according to data from the Oil Price Information Service.

Why?

“That’s a marketer’s decision,” Mike Rud, president of the Bismarck-based North Dakota Petroleum Marketers Association said when asked about the price disparity. “You have to do what you have to do to pay your bills. Fargo has always been lower than the rest of the state. Fargo is one of the most competitive marketplaces in the country.”

Since 2000, the price of unleaded gasoline has averaged 5 cents more per gallon in Grand Forks than in Fargo despite only slightly higher wholesale prices at the Grand Forks Magellan terminal.

But in the past five years, the annual per gallon price difference has increased along with gas prices, reaching 9 cents in 2008 when gas price averages spiked to $4.04 in Grand Forks and $3.97 in Fargo. With gas prices again high this year, the difference has increased to an average of 11 cents per gallon between the two cities in 2011.

“It is largely related to competition,” Jeff Lenard, a spokesman for the National Association of Convenience Stores said about the price differential of nearby cities. “Areas with lots of competition, prices will be low. In areas with less competition, operators will be able to make more.”

Rud of the state petroleum marketers association denied that price gauging was a factor in Grand Forks or other markets in the state.

Fargo a competitive market

Gas prices in Fargo are often cheaper than in the much larger Minneapolis-St. Paul market (in fact, Monday, average gas prices were lower in Grand Forks than in the Minneapolis area).

Gene LaDoucer, a spokesperson with AAA North Dakota, attributed the price difference between Fargo and Grand Forks to more cutthroat price wars in Fargo.

But LaDoucer and others have been largely unable to explain why prices in Grand Forks are often higher than in smaller cities in northeastern North Dakota or northwestern Minnesota that generally have higher associated fuel transportation costs.

Larry LePier said it is common for Grand Forks residents making weekend trips to Minnesota to wait to fill up at one of his gas stations in Fosston, Minn., because its prices are often cheaper than stations in Grand Forks.

LePier’s company owns two gas stations in Fosston and one in Grand Forks. But he said he sets prices differently at the stations. LePier said he aims to maintain a roughly 10-cent-per-gallon gross profit margin at his Fosston stations (before expenses and credit card processing fees).

But he said in Grand Forks he generally follows what other gas stations are charging.

“In Grand Forks, there are players that kind of dictate where the market is going to be,” LePier said, without naming names. “How they price what they price often has no bearing on the market.”

Representatives from other local gas stations declined comment for this story. Phone messages left for officials at Simonson Station Stores and Valley Dairy in Grand Forks, two of the bigger players in the Grand Forks market, were not returned Monday.

Regardless of how high gas prices are in Grand Forks, many experts say much of the difference between prices in the two cities are due to how artificially low prices are in Fargo, making for a larger disparity.

Fargo has been ranked as one of the nation’s most competitive markets for gas, meaning gas station owners are operating on lower margins than in other markets.

“Fargo has been having a gas war for so many years that the guys on the Minnesota side are really struggling,” LePier said. “Fargo is way lower than they should be. They have a very low margin. If you are taking credit cards, unless you are also selling stuff inside the store, by the time you make the sale and pay for (credit card processing fees), there is pretty much nothing left.”

Who is to blame for high prices?

Gas station operators insist that they aren’t getting rich from selling gas, even when prices are high. Many stations consider selling gas to be a loss leader that helps drive customers into their convenience stores.

If gas stations aren’t getting rich off high gas prices, then who is?

Oil companies, which own less than 2 percent of the nation’s gas stations, have posted strong earnings in recent years, especially when crude oil prices spike. But while oil companies influence supply, they don’t set gas prices.

Crude oil prices typically account for two thirds or more of the price of a gallon of gas, with refining costs, taxes, distribution, marketing and gas station profits making up the rest.

Supply and demand plays a role in crude oil prices and gas prices, with supply disruptions and natural disasters also factoring into the equation.

Oil price increases in recent years also have been increasingly influenced by investors purchasing crude oil futures. Many of the investors have no intention of actually taking delivery of the oil, and instead buy up oil futures in hopes of reselling it for more, artificially inflating the prices of oil, and in turn, gasoline.

“The business we’re in hasn’t hinged on demand for years,” said Rud of the state petroleum marketers association. “In the last five years there has been way too much manipulation of the market. You have people hedging on the market, never taking delivery of one drop of oil, and driving up prices.”

Schuster reports on business. Reach him at (701) 780-1107; (800) 477-6572, ext. 107, or email rschuster@gfherald.com. Follow Schuster on Twitter at @RyanSchuster.

Tags: gas prices, gf and egf, updates, business, news, fargo, money