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A little local price war between two gas stations in South Houston has allowed drivers to fill up for $0.78 a gallon, despite having to wait in line for 20 minutes in some cases.
The war at the pump “raged” between a Texaco station and a Johnny Quick station – the rivals are located across the street from each other at the Old Spanish Trail, off 288. Johnny Quick gained the upper hand, charging a penny less than the competition, motivating drivers to form long lines to fill their tanks for just $11.
This is not the first price war that has seen drivers flock to certain gas stations. Last year saw a three-way fight for clients in a Michigan resort town bring prices per gallon down to $0.47 – pennies above federal and state excise taxes. In that case, police had to be deployed to Houghton Lake to direct traffic, as the locals crowded a B&B Market and a Valero station – the first one known for its undercutting practices and the other just opened under new management that saw fit to take part in a penny-for-penny price-lowering match.
The third participant in that event was a Citgo station, which, however, stuck to a bit higher prices, at $0.95 per gallon, but still much lower than the average for the state. The cost of filling in cheap was waiting in line for up to 45 minutes, which, Oilprice noted at the time, erased a lot of the actual fuel savings.
The fact that this has happened again highlights the shale industry’s revival that was kickstarted at the end of last year, after an OPEC agreement with another 11 producers saw prices jump to the mid-$50s and stay there, although they fell short of reaching the much more desired $60 level.
U.S. crude oil production has already topped 9 million barrels daily and is likely to continue up through the rest of the year. Inventories have been steadily – and substantially – rising for more than two months now, pressuring benchmark prices further and spurring gas stations to offer the lowest rates for their product to stay competitive.
What’s good news for drivers, however, is not such good news for the gas stations themselves: such marketing tricks as the Michigan and Houston price wars can really cut into these businesses’ bottom line as retail gas marketing is the narrowest profit-margin segment of the oil industry.
By Irina Slav for Oilprice.com
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Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.