Why some gas is cheaper than others

Gas prices on display at a Cheveron gas station in South San Francisco, Calif. -- May 18, 2009. U.S. gas prices have surged 25 cents in the past three weeks.

Jeremy Hobson: Oil prices are back on the rise today around $99 a barrel in Asia trading. They had been dropping because of concerns about the situation in Japan. But even as oil prices dropped gas prices seemed to stay the same. Here in LA, they're around $4 a gallon -- although there do seem to be some stations with gas that is suspiciously cheap.

Here to fill us up with facts is LA Times Consumer Columnist David Lazarus. Good morning.

David Lazarus: Good morning.

Hobson: So what gives with the gas that's slightly cheaper than the rest of the stations?

Lazarus: Oftentimes gas tends to be a little more expensive when you drive around town, especially if you're nearer to a freeway or a commercial center, and that's called "pricing to market." But the cheap stuff, typically like Arco, for example -- how does Arco get away with offering such cheap gas? I've been talking to a number of mechanics and energy experts about this, and on the one hand they say, well you've got your branded gas and your more generic gas. And the branded gas tends to have additives in it, and that might boost the price. But then that raises the question: Are the additives any good? The mechanics are mixed on that.

Hobson: So if I go to a station at like Wal-Mart or Costco -- that's the non-branded gases -- is that bad for my engine?

Lazarus: I wish I knew. I put that to a lot of mechanics and most of them said gas is gas. And I think that's the major takeaway of this. On the other hand, they did say, yes, there are differences. For example, you go to Chevron, it's got Techron in it. Is Techron any good? Well some mechanics told me, yes, it will actually help clean your engine. Others said, not so much. Maybe the generic stuff comes from the bottom of the barrel -- I don't know.

Hobson: So we've got pricing to market, we've got additives. Are those the only things that make the gas so different in different places?

Lazarus: No. I think the key thing we're looking at here is the business model. For example, Arco. Arco is almost always cheaper than other places around. How do they do that? They keep their gas prices low by just simply not taking credit cards, not having to pay the interchange fees that go along with that, and therefore passing those savings onto their customers. It's a model that works.

Hobson: L.A. Times consumer columnist David Lazarus. Thanks so much.

Lazarus: Thank you.

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Back in the 80s we used to visit relatives in Phoenix, AZ, one of whom had been an exec at the local CBS affiliate for 30+ years.

We visited from our home in Texas, and were shocked to find prices in Phoenix even lower than the low ones we were accustomed to.

He told us refiners preferred to "dump" their gas in Arizona rather in order to keep the prices in California "stable."

I asked my Mother-in-law which gas is best (She's a petroleum engineer and designs refineries). She told me they are all the same. Actually sometime different brands actually fill up from the same refinery.

When I managed a gas station in the late 80’s we kept our prices close to our competition. Twice a week a manager had to drive around and write down the prices of all the stations in the area. Sometimes that meant pricing the gas at a loss. Other times at break even.

We needed to sell gas at $0.11 a gallon over what we paid for it to cover cost of taxes, fees, and pay roll. Later when we added a connivance store to the station to replace two of the repair bays, we only needed to price it $0.08 a gallon over cost to break even. At times we would take up to a five cent a gallon loss just to get more people to come in to the store. The real money was in the cigs and lotto tickets.

I’ve moved on since then but I can’t imagine that much has changed.

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