Gas price variance vexes Cheyenne motorists

The difference between Cheyenne and Fort Collins has frustrated local motorists, and many are asking, “Why?”

“Why would we pay more when we produce it? It’s ridiculous,” said Heather Hayes, who filled up Friday afternoon at the Kum & Go at Lincolnway and Ridge Road, where a gallon of regular unleaded was priced at $2.339. “I don’t know how the shipping works, but we should get it dirt cheap here.”

Though Hayes isn’t one of them, some other consumers say it must be price-fixing. But experts say that’s likely not happening.

“It is extremely unlikely that this is due to some kind of malfeasance,” said Mason Hamilton, senior petroleum markets analyst for the U.S. Energy Information Administration, adding that variances are common among neighboring markets throughout the United States.

“It’s probably the most common question I get when it comes to gasoline prices,” he said.

Numerous factors go into the price of gas at the pump, with about 54 percent of the price attributed to the cost of crude oil, 5 percent to refining, 21 percent to distribution and marketing, and 20 percent to taxes, according an EIA breakdown of the average price in December.

Variables include differences in oil that make it more expensive or difficult to refine, infrastructure considerations, competition among wholesalers, seasonal costs related to changes at refineries to meet air quality requirements, state fuel tax rates and competitiveness of local retail markets, according to Robert Godby, director of the Center for Energy Economics & Public Policy at the University of Wyoming.

As the cost of crude oil fluctuates, local market factors play a significant role in how quickly retail prices reflect those changes. Asymmetric price transmission – a phenomenon commonly referred to as “rockets and feathers” – describes how retail prices shoot up quickly as the cost of crude oil rises and float back down slowly when it decreases.

“One of the things that happens is that the market is slower or less competitive,” EIA’s Hamilton said. “There’s not as many stations competing for the same market, so therefore the station owners don’t need to lower that price as much or as quickly. But, given enough time, they do come down.”

Profit margins on gasoline in the area have ranged from about 8 cents per gallon to 20 cents per gallon this year, according to Mark Larson, executive vice president of the Colorado Wyoming Petroleum Marketers Association.

“I will say that margins have been a little slower to come down,” he said. “In other words, marketers and retailers are making up a little bit of the profit they lost.”

Wyoming and Colorado have different sources of crude oil and different refineries. While Wyoming crude oil and refineries are beneficial to the state, Wyoming also has challenges. For example, the federal Renewable Fuel Standard program requires refineries to blend gasoline with ethanol, which is more expensive in Wyoming, where ethanol isn’t as readily available, Larson said.

Michael Blasky, a spokesman for AAA Wyoming, attributed the price difference to market dynamics, noting that there is much less demand for gasoline in Wyoming than in Colorado, and that oil companies focus distribution in areas with high populations.

“Because it’s such a big market, Denver has priority access to a significant supply of its gasoline from Gulf Coast refineries, where we produce some of the cheapest gasoline in the U.S.,” Blasky said in an email.

Colorado’s cheaper gasoline prices are centered around Denver and some surrounding cities, with prices exceeding Cheyenne’s average elsewhere in the state. The average gas price was $2.551 per gallon in Grand County, Colorado, just west of Larimer County, where Fort Collins sits, according to AAA’s data for Feb. 1.

Fort Collins hasn’t always had lower prices than Cheyenne. A year ago, the average price was $2.475 in Fort Collins, compared with $2.377 in Cheyenne, according to AAA. Recent prices remain well below the record high, set in July 2008, when regular unleaded reached $3.939 in Cheyenne and $4.043 in Fort Collins.

Since that time, Wyoming enacted a 10-cent fuel-tax hike – the first increase in 15 years – bringing the state’s gasoline tax to 24 cents per gallon starting July 1, 2013. Colorado’s fuel tax rate is 22 cents per gallon. Federal taxes and fees on gasoline are 18.4 cents per gallon.

But population density and state tax rates don’t explain why prices are lower in Laramie than in Cheyenne. The average price was $2.218 in Albany County on Feb. 1, almost 10 cents cheaper than in Cheyenne, according to AAA.

“It’s complicated,” said Godby of the University of Wyoming.

Local competitiveness varies by market, and that can come down to an individual gas station owner.

“If they’re aggressive, they will always lower their price as soon as they can, and that will drag everyone else with them,” Godby said.

Likewise, without an aggressive competitor, prices will be slower to drop. Retailers keep a close eye on one another, managing prices to compete for customers. Godby called this “tacit collusion” and said it explains why stations across the street from one another will have the same price.

“They’re just watching each other, and there’s nothing illegal about that,” he said.

Ultimately, the final price is determined locally, as retailers try to pull in more customers with lower prices or maintain higher margins when the volume of business is lower, according to CWPMA’s Larson.

“The street sets the price,” he said.

Jonna Lorenz is a freelance journalist living in Cheyenne who has more than 20 years of experience. She can be reached by email at jonnalorenz@gmail.com.