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Michelle Fern Michelle Fern
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edge staff writer


A pain in the (g)as pump

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As gas prices rise, so does my anxiety. We are planning a trip to New Jersey this summer to visit family and based on current prices, it seems the most expensive part will be the fuel to get there. While there is speculation that gas prices will rise to $5 a gallon by summer, I'm not totally convinced since the same claim has been made albeit unsuccessfully for the past three years.

However, I could just be in denial.

But what has caused gas prices to skyrocket? One consumer myth is that gas station owners and operators are making a killing at the pumps. In reality, most operators make their profit from selling snacks, sandwiches and soft drinks inside the store rather than from fuel sales. According to the National Association of Convenience Stores (NACS), a trade group representing gas station and convenience store owners, the markup on motor fuel sales averaged 18.5 cents per gallon in 2011. However, profit margins in 2011 typically were 3-5 cents per gallon, which sets the average breakeven on fuel sales after expenses at around 14 cents above the wholesale cost.

So if it's not at the pumps, high fuel prices must come from somewhere else and that where the commodities market comes into play. As an endpoint product, gas prices are determined by a multitude of factors, including the cost for crude oil, refinement, distribution fees and taxes, and a few speculative supply and demand variables thrown into the mix. And let's not forget the commodities traders themselves who buy and sell futures contracts on the commodities exchanges. These are contracts to buy or sell oil at a specific date in the future at a specific price, and commodities traders can move if not manipulate the market by bidding up oil futures prices, especially if potential military action overseas and the uncertainty in some oil-producing countries cause speculators and traders to anticipate disruptions in the supply side of the equation.

Sometimes that happens, but in a perfect world global market in this case prices are based on what is available, what is being consumed and what spare capacity exists should either supply or demand change suddenly. While demand has decreased in recent years due to the economy, so has the supply for geopolitical reasons. The time of season also can cause prices to fluctuate, where summer travel usually causes prices to rise and in the winter prices go down because the demand for travel decreases.

A long explanation for sure, but unfortunately in any scenario the one who always pays is you. And the way you pay also has something to do with it.

If you pay for your fuel purchases with a credit card, you're contributing to the problem. Many use that payment method instead of cash I for one like using a debit/credit card for a couple of reasons, but mainly because I am too lazy to walk inside and pay cash. But a recent report indicates credit card companies are partly to blame for the pain at the pump, as stations pass these 'swipe fees' along to consumers.

The recent report from NACS shows credit card fees are the second-largest expense at the store level. What is disturbing is that drivers are paying 6-10 cents a gallon in hidden bank fees every time they gas up. To make matters worse, the banks fee goes up with the price of gas, even though your bank is doing nothing extra to process your debit or credit card transaction.

In speaking with a local business owner I was also shocked to find that there is a considerable difference between the fees charged for a PIN-based debit transaction and a credit card transaction. Sure enough, according to the NACS, convenience stores, which generate three-quarters of their sales volume from motor fuels, tend to be charged a higher rate than other retail channels because they are not able to steer pay-at-the-pump customers to choose debit and enter a PIN as easily as other retailers. As a result, many debit purchases, which should carry lower rates after the passage of the so-called 'Durbin amendment' in last year's Dodd-Frank Wall Street Reform Act, are processed as credit and carry higher costs to convenience store retailers. Still, critics argue that passage of the Dodd-Frank Act created a huge windfall for the gasoline retailing industry, as many companies haven't reduced their fees to consumers. Retailers argue that they are often hit by such fees twice if the same customer pays at the pump and then makes a separate purchase inside the store often with the same card and regardless of whether it's a debit or credit card.

Many local retailers have fought back against these fees by offering cash discounts at the pump. It not only benefits you as a consumer but the store as well. The average consumer can save two percent at the pump usually five cents per gallon and if you use cash instead of credit, it certainly can give new meaning to 'cash and carry.'


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