The Price of Gasoline: Updated

Update: According to this story in yesterday’s English language daily, business is good for Western Refining.

Western Refining beat analysts’ expectations, earning $138 million in the second quarter, or $1.44, per share excluding special items, company officials announced this morning.

“This was another outstanding quarter for all of our business segments,” said Jeff Stevens, Western’s president and chief executive officer.

Analysts had expected earnings of $1.32 a share.

“Our refineries ran at historically high throughput rates in a strong margin environment and expenses were in line with expectations. In our retail business, we saw an increase in same-store fuel volumes, fuel margins, and merchandise sales,” Stevens told analysts today.

So we may be paying the highest gas prices in the state of Texas, but at least somebody’s happy.

One time, years ago, I stopped for gas at the 7 Eleven at the corner of Mesa and University. At the time, there were gas stations on three corners at that intersection. The prices at the Chevron station across the street and the 7 Eleven were about the same, about six cents higher than the Circle K. I asked the manager of the 7 Eleven about the discrepancy in prices.

He said, “We don’t compete with the Circle K. We compete with the Chevron station.”

Of course, he didn’t mean “compete.” He meant “collude.”

There’s an article in the El Paso Inc. this week that informs us that gasoline prices in El Paso are the highest in the state, despite El Paso being home to an oil refinery and being serviced by a number of pipelines. The intrepid reporter David Crowder attempts to find out why, with so much oil infrastructure so close, El Paso has the highest gas prices in Texas.

For much of this summer, and for reasons that are hard to find, El Pasoans have been paying the highest prices for unleaded gasoline in Texas — and not by a little.

Last week’s price per gallon averaged a little over $2.66 across the city, according to the American Automobile Association and the onloine price checker,

That was 19 cents higher than the average in Texas, but slightly lower than in New Mexico and the national average of $2.67.

Well, there must be a simple explanation, right?

In an email exchange with El Paso Inc., Western Refining’s spokesman Gary Hanson wouldn’t attempt to explain why El Paso’s gas prices are so high.

“There are a number of factors that impact gasoline prices, and they vary by region,” he said. “That is why we don’t comment on specific prices.”

Mr. Hanson was a little more forthcoming (but not much) with the El Paso Times, in this story predicting that gas prices will fall to around two bucks a gallon by Christmas.

[He] said, since crude oil is the primary component in the cost of gasoline, if the price of oil goes down, the price of gasoline will go down accordingly. The price of gasoline is “driven by production and the price of crude.”

Think you can milk your current tank till Christmas?

Classic economic theory holds that in oligopolistic markets, suppliers will set a price above the price that would be set in a perfect market with multiple suppliers. Fair trade laws prohibit the gas suppliers from discussing next week’s prices, but a drive around the city would quickly inform any of the smaller suppliers of the pricing strategy of the price leader.

I don’t know which supplier sets the prices in El Paso, but I have to think that Western Refining, with a refinery in the middle of the city, could easily beat any of its competitor’s prices if they were inclined.

Gasoline prices are like taxes. They affect the price of almost every other commodity in the region. A decrease in gas prices means more money for consumers to spend on other things, thereby creating a broad economic stimulus in the region.

Of course, it’s not Western Refining’s job (or the job of any of the other suppliers) to stimulate El Paso’s economy. All of the suppliers are obligated to deliver profits to their stockholders. But in the long term, wouldn’t the suppliers be better off if the area enjoyed a vibrant economy?

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