To The Editor: Why are fuel prices so high in Parker?

Here’s a Parker Live reader with a common question:

“I’ve watched fuel prices go up and down like we all have, but over the last year it seems prices nationally have fallen everywhere but here. Even in Bullhead City, the price of fuel seems to be lower. I understand taxes play a role, but with the price at the pump falling nationally, why aren’t they falling here?”

– Getting Annoyed Seriously

When you compare the price of a gallon of gas in Parker, AZ with the same gallon in other places, a few things can jump out at you, GAS.

First, its important to note that you’ll pay much less in Parker than you will in the Inland Empire, Orange County, San Diego or Los Angeles. The average price per gallon of regular unleaded (87 octane) in the state of California is $3.04 today, while the average price per gallon in Parker is $2.36 – 68 cents less.

Part of this difference can be attributed to the difference in tax: almost 50 cents of every gallon of gas in California goes to state excise tax and other state taxes and fees, compared to an equivalent amount in Arizona of less than 37 cents. There’s also a difference in the ‘priced to market’ value of gas, and we’ll come back to why this may be important in a moment.

But what you’re really asking, GAS, is why we pay more in Parker than the Arizona average, which at just $1.97 per gallon is roughly the same as the nationwide price for a gallon of regular. (Whatever the nationwide price is, the Arizona price is usually pretty close.)

That’s a very good question. Why do we pay more? And what are the factors affecting the price? KLPZ’s Keith Douglas says he’s never lived in a place with a low price of gas. That sounds familiar to me! So let’s consider some answers.

First things first: let’s compare today’s average prices in Parker to other nearby cities, and the Arizona average.

 
You’re right, GAS, Bullhead’s prices are pretty great! So what could possibly account for these differences?

According to the AAA, there are many factors that go into the price of fuel. Unlike an iPhone or a Whopper with cheese (a ‘Chopper’?), gasoline – derived from crude oil – is a commodity, and its price is not based on what it costs to produce but what it costs to replace. This is true at the New York Mercantile Exchange and it’s just as true on Riverside Drive in Parker.

Here’s a very crude summary (see what I did there?) of how it works. Gas wholesalers each have their own formulas for setting their ‘rack price’, which is based on the cost of oil and a bunch of other things, including their profit. Every day, these wholesalers will tell the gas station owners what the rack price will be for the next 24 hours. The gas station owners hire trucking companies to bring them gas, and those trucking companies will charge for that service, all of which gets added to the price the gas station owner decides to charge customers, which they will ultimately base on the local market (what their competitors are charging here in Parker).

With me so far?

There are typically only a few pennies per gallon in profit for most station owners, who make more profit from their convenience stores than from the gas itself. But one possible variable, if we want to truly understand why customers in Parker will spend 42 cents more than customers in Bullhead for the same thing, may be the costs of transportation. And that’s by process of elimination: there’s no difference in refining cost and profit (approximately 10 percent of the price of gas); there’s no difference in the price of crude (67 percent of the price); there’s probably not all that much difference in taxes and fees for gas stations in Parker as compared with Bullhead (13 percent of the price).

So perhaps freight charges for carriers going out of their way on Highway 95, bringing gas along a corridor without a major metro area along it, or the promise of one at the end of it, adds to the price of freight in a way that increases the price of a gallon by 30-40 cents?

That seems like the likeliest answer to me, GAS, but some people don’t buy it. (Pun intended.) A popular alternative theory is a claim that’s often made by Parker and Havasu people, and it goes something like this: Gas stations know they have a captive crowd who have no choice but to pay for their precious liquid whatever the price is, so they’re colluding with each other to keep the price high. Sound familiar?

Only gas stations know their own costs and revenues, so I can’t give you a definitive answer about whether the price-gouging conspiracy is true or not. But it sure seems likelier to me that the price differences between cities are due to the big factors that impact costs – transportation, freight capacities and routes, regulations and the like.

I realize that may not be a very satisfying answer, GAS, so let me offer a third possibility.

Earlier I mentioned the ‘priced to market’ value of gas. The truth is that the Colorado River corridor is a hybrid market, revolving economically around a large California-Arizona community of comers and goers, the vast majority of whom have high-octane interests and lifestyles (even if that just means driving a truck and driving it for long distances fairly often) and many of whom are used to paying much more for gas than the average citizen of the A.Z. So perhaps it isn’t super surprising that the market value of gasoline in Parker tends to lie somewhere between the California and Arizona averages.

And who might set those prices? Well, perhaps those gasoline wholesalers are pretty smart about the markets (and hybrid markets) they’re delivering to, and what they may be willing to pay? I don’t know for sure. Weigh in on our poll where you can suggest your own answer!

Thanks for the question, GAS. The answer is as clear as crude.

JW