Good Question: Who Sets The Price At The Pump?

By Jason DeRusha, WCCO-TV

MINNEAPOLIS (WCCO) — With gasoline prices knocking on the $4/gallon mark in the Twin Cities, consumers are looking for someone to blame. But when the price jumps in a day, who makes the call? Who sets gas prices?

As much as we’d like to blame the oil companies, the refineries or the distributors, “they don’t tell me how much to charge,” said Rick Bohnen, the owner of a Mobil and BP at 60th Street and Penn Avenue in Minneapolis.

“That would be price fixing,” Bohnen said if he were to get an email from the oil companies setting the price.

So who sets it? The individual gas station owners decide what to charge, according to Bohnen.

If a store is owned by a corporation, the corporation sets the price. That’s partly of why one Holiday may charge more than another — it has to do with competition in the area and the property taxes in that town, he said.

The biggest factor, according to both Bohnen and Steve Williams, owner of Bobby & Steve’s Auto World, “The neighbor, the competitor down the street,” said Williams.

“This store leader here is required to go by the competition, twice a day just to make sure they haven’t dropped or risen” the price, he explained.

“You can’t afford to be 10 cents higher than the guy down the street. You just will not sell it,” said Bohnen.

Every day a station gets emailed the wholesale cost for a gallon of gas, for reference. They use that number and then add on about 11 or 12 cents to try to figure out what their ideal price point would be.

But the reality of what consumers pay at the pump has little to do with the literal cost of the gas in the ground.

“It’s all reacting to the competition,” said Williams.

Many Holiday and SuperAmerica gas stations are owned by the corporation. Historically, according to Williams and Bohnen, they tend to raise and lower their prices first.

“When they move … the smaller chains will follow,” said Williams.

Bohnen said there’s no restriction on changing prices multiple times in a day. So how long does it take for one company to make the move and the others to follow?

“When you’re on the street every day, you just get a feeling that something’s happening. It can take 10 minutes, 15, 20 minutes. Never more than half-a-day,” said Bohnen.

More from Jason DeRusha
  • Good question

    So gas price changes is all a domino effect, starting with SA and Holiday (or equivalent competitor). Interesting to know. Always thought it was like “Deal or No Deal”, where the stations get a call from the negotiator who tells them what they need to charge/gallon. Good question.

  • Jim Jacobsen

    I’ve always seen a connection between the media stating that the price will reach such and such amount according to so on and so forth I call it the media fulfilling prophecy the media announces that someone said it would and magically it does. I think they sit there and wait to hear it on tv and once they hear it they do it…

  • JP

    Minnesota companies are only able to set their gas prices in accordance with the Minnesota Minimum Gas Price Law. The law requires the minimum price to at least 8 cents over daily wholesale. Do your homework Jason.

    • M B

      Must be at least 8 cents over wholesale?
      So what?
      That law doesn’t state what the MAXIMUM price they can charge is, and THAT’S what’s under contention here.
      I seriously doubt that these shops are charging that minimum 8 cents over wholesale price right now.

      • JP

        Maximum has nothing to do with it when the minimum is artificially high. The 8 cents is not over wholesale, it is over the average daily wholesale (per day).

        Large companies buy in bulk. If they buy 1 million gallons, they pay x. If the wholesale price goes up after their purchase they are required by law to raise their selling price to 8 cents over generating more sales revenue for Minnesota.

        Yes they make money on this, but for competition purposes they have been lobbying against this law for years. They would rather sell gas at 1 cent over their cost and get the people in their shop to buy drinks and candy bars.

        That is why we are in the top 10 highest gas prices, not just greedy corporations.

  • M B

    As I expected. The big corporations are fleecing the country and the rest are getting in on it. If the little guys kept their prices lower, the big chains would be forced to do the same.
    But they don’t keep the price lower. I was wondering why when three years ago when gas was 4.19, oil was $150 a barrel. Now it’s $110 a barrel and $3.90 for gas. Something’s fishy there.
    I’ve been watching prices for years and the holidays and SAs always raised their prices first and quickest, so I knew big corps were involved.
    I reward companies that aren’t greedy with my business. Probably why I bought gas at Fleet Farm for 3.75 today. I do as much shopping there as I can because of that.

    • Matt

      MB, I’m with you I don’t buy gas at Holiday or SA because of that. They set the prices in this market and always take big jumps 15-20 cents then back it down 2-3 cents every couple days after that.

      I give my business to other companies in hope it will break that very annoying price gouging trend.

  • Justin

    Great article Jason. Good investigative journalism right there. I believe this answered many people’s questions. thanks

  • Dave Seavy

    If that’s the case, wouldn’t it make sense for an owner to keep the price lower than the competition, therefore driving prices down? I recall the gas pricing wars of the 60’s and 70’s, and that very scenerio worked slendidly to keep pricese in check. And the station with the lower price would certainly hurt the competition enough that they would lower theirs. Besides, most stations are also convenience stores, which is where they make the real money. Rather than trying to keep up with SA, how about kicking them in the pump. We’d all benefit.

    • Julie

      Exactly right, Dave. For those of us that just want/need to get to our jobs every day, this is bleeding us to death. I can’t even fathom the greed involved in this scam. It’s become a toss up, do I drive 30 miles to work or do I quit and go without the money these people are siphoning out of my gas tank?????

  • johnjohn

    So it would seem that there is a couple of guys at SA and Holiday that are setting the prices. I would like to know THEIR names and have a little chat with them. How much of their bonus comes from making a little extra profit from jerkin the price up which in turn affects everyone else. They also tend to go very high and see what comes of it and adjust down if needed. It is a scam. Nothing more.

    • Matt

      Don’t shop Holiday or SA… Simple fix.

  • ntwrn

    We’ve seen a gallon of gas rise by 30 cents in a day. Couldn’t the goverment help the consumers by putting a temporary freeze so that the price of a gallon of gas can’t be raised more than 15 cents in a 7 day period?

    • TF

      The last thing we need is MORE government interaction…

      Solving this problem isn’t that challenging. People complain about high gas prices and outsourcing jobs, but they don’t think of how many hundreds of thousands of high paying oil jobs are being killed in the US by the green energy push. Start drilling, start producing something in this country, build our wealth, slow oil price increases it’s a win win across the board.

      Instead the Obama administration gives $2 Billion to the largest oil producer in Brazil so they can drill more wells and export it to China. Obama is directly supporting something in Brazil he won’t support in the US. If Bush was in charge he would be murdered for it, in fact how many people were blaming Bush a couple years ago when gas why skyrocketing and are giving Obama a free pass.

      • Quackers

        @ TF I agree 100% thank you!!

      • RB

        IDIOT ! ! !

  • Phil Hildman

    The story you ran is very tainted. Get all the facts instead of stirring up the population. It was mentioned in one other comment about the minimum priciung requirement. Had you done your homework you would have known that and the fines that go along with not being in compliance. To use round numbers, the cost you referenced as being daily is just the cost. An additional 8 cents per gallon to be “legal” is then added. That is the lowest possible price you can post on that day. If cost jumps from say $3.50 to $3.75 your lowest retail is going to jump at least from $3.58 to $3.82. That is just to stay legal. Most people are iin business to make a profit so a buffer is added in to that jump to try and protect from raising the price 2 consecutive days. I am once again very disappointed by a news outlet not getting all the facts.

  • Mae Johns

    This story is absolutely worthless. It says nothing about how the actual cost of gasoline is set, mentions nothing about the gambling on the commodities market, and mentions nothing about the huge profits the oil companies are making on the backs of working Americans. Mr. DeRusha fails again.

    And to TF – you really don’t understand economics at all, do you? Since when is the (small amount) of oil in this country OUR oil? It’s owned by the oil companies and it goes on the international market. All that blather about “our” oil is ignorant.

  • J F

    That didn’t answer the question completely for me… So they set their price about 11 or 12 cents above the wholesale price but who decides the wholesale price? Oil Companies etc?

  • derek

    Whoever wrote this is a moron. The company sets the price, but the gas company sets the price of oil barrels..

  • Who’s fault is it? | sreding11

    […] gas stations are the determining factor when it comes to price. According to an article done on CBS Minnesota, a writer determined that the owners of the gas stations whether they are corporations or […]

blog comments powered by Disqus
Thursday Night Football

Listen Live