Labor Day travelers caught a break at the pump. It was only a few weeks ago when prices nearly topped $3 a gallon when half of the BP refinery in Whiting, Indiana went off line sending prices skyrocketing across Great Lakes states. The Michigan Attorney General sent out a letter warning BP it wouldn’t be tolerated. While there was a sharp increase, Gas-Buddy-Dot-com’s senior petroleum analyst says we should have paid more than we did back in August and he wonders why the full amount wasn’t passed along to consumers.
“Some things you scratch your head about and this is one of those things.”
A gas prices increase so large so fast across the Midwest it rivals the price spike triggered by 2005’s Hurricane Katrina.
Patrick DeHaan is senior petroleum analyst with Gasbuddy.com. Daily he studies the spot, or rack price, of wholesale gas. He says when the BP Whiting refinery shut down half its operation something happened he has never seen before.
“This time around it seems like gas stations actually didn’t pass the full increase along to motorists. Meaning, I saw wholesale gas prices at some places across the Midwest skyrocket 95 cents per gallon but in Grand Rapids Michigan and West Michigan prices went from the $2.30s or $2.40s up to $2.99 that’s only a 50 to 60 cent increase, with my arithmetic, meaning there’s an increase that wasn’t passed along to motorists.”
The price spike did get the attention of Michigan Attorney General, Bill Schuette, who fired off a letter to BP warning his office “will not tolerate…gouging and price fixing.”
While DeHaan would agree prices were inflated, this industry analyst again suspects there’s more to it than that.
“I believe that prices at the retail level didn’t go up enough to match the wholesale price, and perhaps, the major chain that exists in the Great Lakes, and its parent company which is a refiner, kept prices down hurting competition who, were at that point, losing lots of money.”
DeHaan’s theory is that Marathon’s Detroit Refinery, running at full capacity, could provide a cheaper product to its Speedway chain while BP was at a supply disadvantage.
Is this truly a case of predatory pricing? WGVU ran that scenario past Paul Isely. He’s Associate Dean at Grand Valley State University’s Seidman College of Business.
“For the upper Midwest, Whiting is the 90 ton gorilla.”
Isely tracks gas prices on a daily basis and is an expert in antitrust law.
“Generally speaking, if you sell below the market price you’re leaving money on the table and if we believe corporations want to profit maximize they’re not going to do that. Now, it might be that the refinery and the gas stations are owned by the same group of people, but in that particular case if I charge my retail less money it means I’m also losing money on the other side. It’s a net zero. So there’s not a lot of incentive to price low unless you believe that you can drive people out of business and therefore have a higher market share in the future.”
Isely says it’s unlikely Marathon will drive BP out of business anytime soon. As for the reason why the full price increases wasn’t passed along to consumers, Isely points out retailers lower the prices slowly recouping their losses.