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The Hesston Record
347 B Old Hwy 81
Hesston, KS 67062
(620) 327-4831

This Week's Issue:August 25, 2016 August 25, 2016


What Is Behind The Pain At The Pump? 

Posted 5/23/2013

In recent weeks, Hesston residents could not help but notice a dramatic increase in fuel prices. The cost of gas has increased, on average 12 percent in the Wichita Metro Area over the course of the last month. According to AAA, the national average retail price of a gallon of regular gasoline in March 2013 was $3.71. In April prices were $3.51 per gallon. The current average is $3.65 per gallon. Bill Walljasper, Senior Vice President, Chief Financial Officer of Casey’s, offered insights as to what is driving the spikes in fuel costs. “Obviously there has been an increase in retail price. One of the things the consumer doesn’t know is there has been a jump in wholesale cost,” he said. Walljasper said while Casey’s is paying more for fuel, the causes are unknown. “It could be a wide variety of things. It could be the price for crude, supply in the area…Everyone’s cost has gone up significantly over the last two weeks,” he said. Walljasper said, as a national company, Casey’s is making a modest profit margin from gasoline sales. “On average, through our 14-state area, we make about $.14 for every gallon sold. It might be slightly different in Hesston, but that is the company average,” he said. Walljasper said fuel sales account for about 20 percent of the retailer’s sales. “I can’t speak for everyone else, but the profit – revenues will be high because of the price – but it is our lowest profitable category. About 25 percent of our gross profit,” he said. Walljasper said Casey’s pricing model consistently puts the store level with area prices. “As far as pricing goes, I have been with Casey’s for 23 years and our pricing philosophy hasn’t changed. How we price, we identify the competition around a store. We understand that might be the next town over in some cases, and we will check prices throughout the day and adjust our prices to match,” he said. 

The Hesston Casey’s identified its competitor store is Newell’s Truck Stop in Newton. “This is done locally. There are parameters for the manager and area manager to adjust sales amounts and they must be given approval through management. It really is up to the store manager and Area Supervisor,” he said. This model of pricing can lead to volatile fuel prices. “It could change multiple times a day,” said Walljasper. With retailers seeing increases in wholesale costs, there are several factors that could be driving increased wholesale prices. Since oil is traded in dollars, a weaker dollar makes crude and other commodities more appealing to investors holding other currencies, according to the Washington Post on Monday. On Tuesday, crude oil prices were once again on the up-swing with WTI crude up to $96.71 per barrel. Brent Crude Oil was up $.11 to $104.80 per barrel. According to The U.S. Energy Information Administration, the four main components of the retail price and approximate shares of the total price were: • Crude Oil: 63 percnet. The cost of crude oil as a share of the retail price varies over time and among regions of the country. Refiners paid an average of about $98.00 per barrel of crude oil, or about $2.34 per gallon, in March 2013. • Refining Costs and Profits: 16 percent • Distribution, Marketing, and Retail Costs and Profits: 10 percent • Taxes: 11 percent. Federal excise taxes were 18.4 cents per gallon and state excise taxes averaged 23.47 cents per gallon. In Kansas, the state tax is $.24 per gallon of gasoline. Other factors affecting the fuel market is speculation and Wall Street trading. According to Reuters, in late February of 2013, “speculative traders held paper contracts equivalent to almost 420 million barrels of oil. That's more crude than the United States consumes in three weeks.” Also according to Reuters, “Americans could spend more on gasoline this year than ever before. The average U.S. household is already spending nearly $3,000 a year on gasoline expenditures, according to a recent government estimate.” In an article, “Analysis: As U.S. gasoline prices soar, hedge fund oil bets near record” written by Cezary Podkul and David Sheppard the exact impact of futures trading on gas prices is still unclear, “The extent of speculators' impact on oil - and, by extension, gasoline prices - is complicated by the way the commodity is traded. “Unlike stocks or bonds, which are issued by a specific business and only available in limited quantities, companies all over the world can produce oil and sell it against U.S. and European benchmarks. “So even though U.S. production is expected to grow at the fastest pace on record this year, according to the Energy Information Administration, the market is also taking its price cues from elsewhere, analysts say,” While the markets fluctuate, a pattern is emerging in American crude oil markets. In 2011 and 2012, oil prices reached their yearly highs. In the second quarter, crude oil prices dropped dramatically. In between May and June of 2012, U.S. crude oil prices dropped from nearly $110 per barrel to $80 per barrel. Brent prices fell in kind, from around $125 per barrel to $90. What does this mean for consumers at the pump? Walljasper said no one knows. “I’m making a guess – which is all anyone can do. Unfortunately from a convenience store perspective, one of the most volatile prices is gasoline. There are so many macro factors that affect the price and ultimately end up affecting retailers and consumers,” he said.