This Is What Actually Determines the Price of A Gallon of Gas

Joe Weisenthal (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal. Unfortunately, my co-host Tracy Alloway is off today.

Nonetheless, we are going to hopefully have an important conversation about gasoline.

It's been on this pretty big tumble over the last two months, but I still sense that, you know, OK, it's sort of tied to the price of oil. Oil prices have come in, but it feels like there's a lot more to it than just the oil price. It certainly doesn't move in just lockstep with oil. There's refining. There's regional variations. There's variations from one gas station to another literally right next door. So there's at least to me still, there's still a lot of mystery about like why the price of gas is what it is. Why does it always seem to end in 99 cents? I've never gotten an answer to that, whether it's $2.99 or $3.99 or $4.99 seems to be popular. All these things, you know, gas is so central, so central to the economy ever since gas started going down, prices started going up. Biden's approval rating started ticking up when gas prices started falling. And of course, vice versa.

The price of gas feels like it's determinant of almost everything these days in American life. And so why don't we learn like what causes the price of gasoline? So to answer all of our questions, or I guess in this case, just all of my questions, I want to bring in Patrick De Haan. He is the head of petroleum analysis at GasBuddy, which is a service that provides price tracking for consumers, tells them where the different prices are at different stations around them. He's been at GasBuddy for 13 years. He knows everything about the price of gasoline. And if you follow him on Twitter, he is always answering in a pretty direct manner, what's going on with gasoline. And when he's when price is going up, Republicans love him and talk about how terrible the White House is doing.

And when the price is going down, everybody flip sides. And meanwhile, he keeps it apolitical and just says, this is going on with gasoline, even though it's so so central to what's going on. So, Patrick, thank you so much for coming on Odd Lots.

Patrick De Haan (2:28)

Thanks for having me. It's certainly always fun when prices go up or down to see the movements and watch all the politicians change sides. And one minute it's great and the next it's not.

Joe Weisenthal (2:39)

I mean, that is my impression just from watching your Twitter handle. You're talking about the price of gasoline and suddenly you see so viscerally how central gasoline is to say American politics by essentially who is attacking you at any given moment for just tweeting out the news.

Patrick De Haan (2:57)

Yeah, that's really true. People have a problem with prices going up and they have a problem with them then coming back down and one side likes when prices go up or down.

It's become very political. We'll just say it that way.

Joe Weisenthal (3:09)

Well, let me ask you a question that is I don't think political at all. But so it's a super basic question. But is it the core of what you do at GasBuddy? And I also think it can maybe help us almost like work backwards in figuring out the price of gas.

But if your app essentially compares, well, what is gas at this corner station versus maybe what you could get if you drive three blocks away or 10 blocks away, it immediately raises the question, like, why is gas, the price of gasoline different at one station to another? Why is there variation within gas stations very close to each other?

Patrick De Haan (3:44)

Well, and it's really loaded and very complex. I'll try to dumb it down. But essentially, gasoline like oil and other commodities, the prices that stations are paying will change on a daily basis. There may be different suppliers, there's different competitors. So essentially, at the station level, stations are all paying something different depending on the timing of how much they're buying, who they're buying from.

And with oil so volatile this year because of a lot of these high level factors, recovery from COVID, Russia's war on Ukraine, the overall economy, the price of oil and gasoline has been gyrating violently. So one station may get it 25 cents a gallon less than another.

And so that goes into these various hotspots. But stations also, when prices have been declining as they've been for the last nine weeks, stations have incredible latitude to either lower their prices very quickly as their cost goes down or kind of more slowly, depending on if they got the timing right this year. Stations may have a different financial position, that is, they may be hurting when prices went up because, as many people do not know, it's oftentimes very hard to be the first one to pass along the price increase. So stations take it on the chin when prices go up, and when prices go down, they're in less of a hurry to lower prices. And that can create some of these hotspots where they're maybe in a very aggressive gas station that wants to lower prices, and some others may not be so aggressive. And that can cause a lot of variety in what you're paying locally.