Can Gas Prices Be Too Low

We frequently hear about gas prices being too high, jumping $.20 to $.35 quickly, seemingly overnight without obvious provocation, and sluggishly falling in contrast by a few mere pennies when they do drop.

We’ve seen record peaks of gas prices well above $4 a gallon. But is it possible for gas prices to be too low? My answer, as well as the majority of people putting an average of $200 to $400 a month into their gas tanks: no. I long for the days when it cost $15 to fill my car for the week. But Wisconsin’s official answer: yes, it is possible for prices to be too low.

Wisconsin state authorities have stepped in to investigate after a month-long price war between four local gas stations in Oconto County went awry, recently offering prices as low as $3.39 a gallon – nearly $.50 less than other stations in the area. During the price war, stations consistently had vehicles lined up to fill up.

You’d think the authorities wouldn’t care how the businesses price their fuel in order to entice customers as long as they are not criminally ripping off patrons, but per Wisconsin state law the gas distributed must be sold at a minimum mark up of nine percent above wholesale cost. This is meant to protect smaller companies from being out-discounted.

Investigators from the Wisconsin Department of Agriculture, Trade, and Consumer Protection are looking in to whether the prices offered by the Krist, Mobil, Shell, and BP stations were illegally low. The argument could be they’re not necessarily guilty of criminal behavior but simply price-matching their competition.

To the disappointment of locals, the prices have since returned to a nationally similar price-point of around $3.73.

Several factors can influence the price at the pump. Crude oil is traded in a global market whereas gasoline is part of a regional market. However, crude oil prices are important in determining gasoline prices because crude is the primary raw material used to produce gasoline and may account for over half the price of a gallon of gasoline.

Short-term availability in supply versus the market demand can affect the pricing of gasoline. Many states require specific formulations – as many as 18 separate gasoline formulas for different regions of the country – and it is often difficult to import gasoline supplies from one region to another. Each gallon of gasoline is also subject to numerous taxes and fees, which vary by state.

Do you feel gas prices are too high? How much would be considered a fair price for a gallon of gas?

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