Gas Prices Jumping Again
Analyst says it's normal price cycling
Aug. 28, 2014
You may have noticed that gas prices jumped up again, or they will soon if they haven't at your station. One gas price watcher says that's normal, not just for Indiana, but also for other Midwestern states.
"Prices started jumping to about 3.59 a gallon around central Indiana. We saw a hike last week just like now, but last week it only went to 3.55," said Patrick DeHaan, senior petroleum analyst with GasBuddy.com. The price for self-serve regular unleaded had fallen as low as 3.19 a gallon at some stations this week.
The jump in prices has nothing to do with the price of oil, which is around a relatively low $93 per barrel. Rather, this is the beginning of another price cycle. "Price cycling is the term coined by the Federal Trade Commission," DeHaan said of the practice that is common in Indiana, as well as Ohio and Michigan. "This is the 24th time this year that we have seen these big price hikes, and of course this will do nothing to dispel the myth that gas prices go up for the holidays, because everyone will think that's why it is going up," DeHaan said.
Price cycling, DeHaan says, is simply the way gas stations in the Great Lakes region compete with each other for customers. "Markets are so competitive, Indianapolis, Fort Wayne, South Bend, every city in Michigan - it's really just stations engaging in a year-round price war," DeHaan said. Stations allow prices to fall as far as they can while still making some profit, even if it is only a penny or two-per gallon, then they will raise prices anywhere from 20-to-40 cents a gallon to recoup some revenue before allowing the price to trickle back down. DeHaan says it's even possible prices could start declining during Labor Day weekend, when most everyone thinks they will stay high.
There have been studies, DeHaan says, that show consumers actually come out ahead in states like Indiana where gas stations cycle prices. "Because it gives you the opportunity to fill up when stations aren't making any money. No other states do that. Stations outside the Great Lakes are always making about 10-to-15 cents a gallon of profit every day."