The Three Markets: Contract, Spot and Futures

Both oil and gas are traded on three markets: the contract market, the spot market, and the futures market. Each is influenced by different factors and impacts the price of gas at different stages of production. Unlike the futures market, the contract and spot markets are not the kind of markets found on Wall Street; they are informal networks of businesspeople.

The Contract Market
Though it seems like oil companies spend most of their time ruining your day by raising the price of gas, their primary business is exploration. Once an oil company finds a field and coaxes it into producing crude, it takes that unrefined oil and sells to refiners. The vast majority of oil is sold by contracts. A veritable orgy of contracts signed between oil companies and dealers, oil companies and refiners, refiners and independent dealers predetermine the fate of most oil and gas.

Refiners plan their purchasing and refining activity to ensure that these contracts are fulfilled. In exchanged for this privileged standing, refiners charge contract customers a premium.

The Spot Market
Need some extra oil? Got a spare barrel you need to sell today? The spot market is for you. The spot market fills the gap left by the contracts market. When a refiner needs extra oil to meet its contracts, they find people with surplus oil on the spot market. Unlike the contract and futures markets, which trade pieces of paper, the spot market involves the trade of actual barrels.

The best deals are often found on the spot market. Since neither the buyer or seller is locked into a prearranged deal, the laws of supply, demand, and free market are mostly in effect.

The Futures Market
Crude oil is the bees knees of the American Mercantile Exchange. A futures contract might stand for 1,000 barrels of West Texas Intermediate to be delivered at Cushing, Oklahoma. The futures market represents that collective state of the oil market at any particular moment. When you hear reporters talk about the price of oil reaching $100 per barrel, they're talking about the futures market. Because fluctuations on the futures market are driven by information, its prices guide the contract and spot markets.

The people buying and selling futures rarely, if ever, collect on their contracts; a seven year period saw 5 billion barrels traded, of which only 31,000 were ever delivered.

Refineries

Refineries are the temples where crude oil gets Bar Mitzvah'd into gas. Shifts in the refining world over the past two decades have helped ratchet up the price of gas. In the early 80's, there were over 350 refineries, mostly owned by the oil companies. The oil companies didn't see refining as a place to generate profit, but as an integral part of a larger operation.

By 2002, there were only 153 refineries, and most of them were no longer controlled by the oil companies. Refineries are now held privately and independently, and as with any independent businesses, profit is key. It is in the refiner's interests to supply only as much gas as is absolutely needed to stay on the profitable side of the supply and demand curve.

Gas emerging from a refinery is sold at what is known as the 'rack price.' The rack price is the cost of gas to dealers, and it is generally influenced by the spot and futures market. The rack price is also where branded gas begins to exert a price premium.

Branded gas from Exxon-Mobile, BP-Amoco, etc, isn't different from the unbranded gas found at Joe Schmoe's Gas Shack. Still, there are several costs associated with branding gas. The brand name carries a premium, since people might associate it with quality, and not grossly overcompensated executives. Branded gas is also sold under contract, giving buyers long-term stability that can't be duplicated by unbranded gas. Oil companies also add value to branded gas by providing ancillary benefits that command a price premium, like branded advertising and branded credit cards.

Refiner pricing strategies are almost as complex as the mating rituals of the red-sided garter snake. Though refiners want to maximize their profit, they don't necessarily want to gain additional market share. Refining capacity can't simply be ramped up on demand. Acquiring and refining crude oil takes considerable time, leading refiners to take a slow and steady approach to business. First and foremost, refiners care about fulfilling their contractual obligations. Leftover gas can be sold for profit on the rack.

If a refiner's rack price is consistently too high, dealers will take their business elsewhere when their contracts expire. If the rack price is too low, buyers might swamp the refiner, leaving it unable to meet its contractual obligations.

To ensure pricing continuity, refiners used to call each other and share pricing information. Activist judges on the Supreme Court called this "collusion." The refiners, unfazed by the justices, came up with a crafty alternative: publicly posting their rack prices. Somehow, the Ninth Circuit Court found this to be illegal, too. Nobody knows how refiners discuss their pricing arrangements nowadays, but we wouldn't be surprised if it involved a members-only group on Facebook.

Gas Stations

Ah, gas stations. Nourishers of our cars, wellspring of our rage. Gas stations are not all alike. Some are owned outright by the oil companies, while others are leased by dealers who sell only one brand of gas.

There are supposedly nine benefits to being a branded lessee-dealer:

(1) a wider variety of grades of gasoline than unbranded, which leads to higher gross profit margins,
(2) access to oil company credit card at no fee,
(3) oil company third party fee discount for VISA and MasterCard,
(4) "subsidies" in the form of soft loans and investments,
(5) marketing assistance,
(6) rebates based on incremental volume,
(7) training and support on how to run a profitable gasoline station,
(8) technical support and station startup design, and
(9) security of supply.

There are also open dealers, who sign contracts with a particular brand, but can shift their allegiance whenever the contract expires. Open dealers interface with refiners through middlemen known as jobbers. A jobber will often supply several dealers, and depending on the size of the operation, will sign contracts, or buy unbranded gas either from the rack or the spot market.

Finally, there are the true independents. These folks shop around for the best unbranded gas price, sometimes aided by a jobber. They almost never sign long term contracts and almost always get their gas from the rack or the spot market.

At the turn of the 20th century, the U.S. had just under 175,000 gas stations. Of those, about 55,000 are run by independent operators. Of the remainder, half are run by open dealers, and the other half is split between company-owned and lessee-dealer stations.

Fixing The Price Of Gas

Oil companies set the price of gas at company-owned stations. What they say, goes. With lessee-dealers, the relationship is more complex.

Lessee-dealers are charged a 'Dealer Tank Wagon' (DTW) price by the oil companies. The DTW price is set either by the oil company's central or regional office, and is driven by both the spot and futures markets. Most importantly, oil companies determine the DTW price by looking at the prices of other stations in the market. This is why two stations with the same brand a block away from each other can have different prices.

Lessee-dealers can't negotiate a DTW price since they sign contracts with just one oil company that require them to purchase a minimum amount of gas. Oil companies allow dealers to sell gas at a slightly inflated margin to ensure a profit stream so the dealers can put food on their family's table. That margin can range from 3-10 cents per gallon.

Why don't dealers just raise the prices more, like 20 cents a gallon, so they can give their families even more food? Some do. If they're caught, you can bet anything the next DTW price will be higher, bringing their profit margins back to normal - only now, their gas is more expensive than their neighboring stations and they have a competitive disadvantage.

DTW pricing is the product of an exceedingly complex and secretive pricing scheme known as zone pricing. A zone can be as small as a single gas station, or as large as a city. The testimony of a Mobil representative in 1997 revealed that Mobil had 46 zones in Connecticut. Most dealers have no idea what zone they are in, even though the DTW price given to their neighboring stations can determine their standing in a local market.

Oil companies, like politicians reapportioning voting districts, rely heavily on technology to slice apart local markets. The DTW price in each zone will be different, taking account several factors including nearby competition, demographics, and the historical demand of the zone. Oil companies also seek to determine the price elasticity of each zone, or how much the zone will pay for gas before looking for alternative suppliers. For some zones, that breaking point is a penny, for others, it two or three cents, and some will stay with their station out of a sense of loyalty. These factors can cause the price of gas in neighboring zones to fluctuate by as much as a dime.

Oil companies adjust zone price by considering what their competitors are doing. The price of rival gas stations will be surveyed two or three times a week, or the data will be relayed to the oil companies by refiners.

Taxes

State and federal taxes account for about 18% of the price of gas. The cost is a constant and is factored into the baseline price of gas.

Eliminating those taxes would reduce the price of gas by a few cents, but would do nothing to otherwise address the underlying factors involved in pricing gas.

Ok... so why IS gas so expensive?

A butterfly flaps its wings in the Saudi desert, causing the State Department to release a warning of increased terrorist activity. The futures market flips out, sending the price of crude skyward.

The higher price on the futures market makes it more expensive for refiners to acquire crude to refine into gas. When the refiner's work is done, the emerging gas will be priced accordingly higher. This raises the rack price and the prices on the spot markets. Oil companies and jobbers with long-term contracts might be insulated from the higher price, depending on their contracts.

Refining oil into gas isn't instantaneous, and there can be a lag before the higher price of the oil is reflected in higher gas prices paid by jobbers and oil companies. That, of course, didn't stop them from raising prices the moment the futures market jumped. So now that the oil that was purchased for refining at a higher cost is ready to hit the market as gas, the oil companies will raise prices again.

This double-dipped price is passed onto dealers as the DTW price, which is then inflated yet again so the dealers can turn a profit.

You paid more for gas thanks to a butterfly.

"It's just a !@$% butterfly!," you say. Sure, but it scared the hell out of the markets. Since the oil companies all move in lockstep, that butterfly can cause the price of gas to rise for several days as one oil company sees another raising prices and adjusts accordingly.

Eventually the markets will calm and the price will begin to fall. This allows the introduction of a friend much more insidious than the butterfly: price gouging.

Despite popular misconceptions, price gouging almost never occurs as prices rise. Instead, price gouging occurs when dealers keep prices artificially high in order to gain a little extra profit or recoup costs, even though the DTW price has declined.

Sticking with our butterfly friend, let's say she caused the DTW price of gas to spike for four days. It may be ten days before dealers lower their prices. That's price gouging.

Most people never notice true price gouging. They will complain that the price went too high, but that's the fault of the oil companies, not the dealers. Prices that stay high for too long go unnoticed. Just because the price of gas stays high does not mean that a dealer is price gouging. The price may actually be higher. That's why it's almost impossible to prove, let alone prosecute, price gouging.

Conclusion
Most of the above draws on the excellent work of the Senate Permanent Subcommittee on Investigations, which produced a 324 page report that makes for a fascinating read. Direct links to the report sections are below:
Executive Summary
Introduction
The Production and Marketing of Gasoline
The Effects Of Market Structure And Concentration On Gasoline Prices
How Gasoline Prices Are Set

Unless you're a Saudi Arabian butterfly, you can't hope to control the oil market, but you can control your consumption. Reduce your gas costs by carpooling, biking, walking, using gas price finder sites to decrease the information asymmetry, and/or switching to a car with a better MPG.

RELATED:
What Goes Into The Price Of Gas?
Get 30 More Miles Per Tank: Turn Off Engine If Idling More Than 10 Seconds
Potentially Insane Ways To Increase Your Fuel Efficiency

(Photo: Getty)

Editor's Note: This post was originally published May 2007. I decided to republish it now because it's one of my favorite posts Carey ever did, and it's incredibly relevant in the current economic situation.

Note: if you can't view the GOOD site, click here for the full graphic.

"Gas Prices" is issue #4 in the free "GOOD Sheets" series from GOOD and Starbucks. Each issue focuses on one topic, and unfolds from a square about the size of a CD case into a large graphic that explores the topic in stats, pics, and captions.

This week's topic is the price of gas, while last week's was immigration. Tomorrow a new one hits the stores on "The State of America's Schools."

"Getting Gas" [GOOD]

"We lost about 1,000 gallons of gas and about $3,500," Mimi Zidan, owner of the Lucky Mart on Derby Street, said Wednesday. "But I don't feel too bad because the people looked so happy when they were buying gas. If I can do this for them, that's all right."

The attendant on duty accidentally adjusted the pumps to sell gas for 35 cents instead of $3.50, and during the two hours before they were corrected people called their friends to tell them about the mistake.

The result was that the situation at Derby and South Fifth streets was totally chaotic, with traffic backed up in all directions when Zidan returned to the store.

"I thought it was an accident," Zidan said. "For the first 10 minutes I didn't know what to do. I didn't want to say you must stop, the price is wrong."

But once the police came in and restored some order, she felt better.

Her sister, Amy Habal, who helps run the store, said it would have been nice if someone had told them about the mistake instead of calling their friends.

"But my sister is very kind, she does not think bad about people," Habal said.

Lucky customers pump 35-cent gas [Peoria J-S] (Thanks, Eyebrows McGee!)
(Photo: spinadelic )

If I had to put a date on it, I’d say things won’t be normal for two more weeks,” said Kenneth B. Medlock III, an energy expert at Rice University, in Houston.

Meanwhile, consumers are going from being "good sports" about the shortage to getting downright angry about it.

“At first I was a good sport, but this is getting ridiculous,” said Marsha Lewis, 43, an administrative assistant who lives in Dacula, Ga., and commutes to Atlanta. “I drive an hour to work every day, and looking for gasoline has become my entire life.”

The shortage was caused by combination of refinery damage and power outages in Texas, says a spokesperson from the Petroleum Marketers Association of America, but there's also plenty of blame being doled out to panicky consumers.

“You hear stories about tankers pulling into gas stations and people are already waiting — and they have half a tank,” Dr. Medlock said. “It’s akin to hoarding.”

Frustration in the South as a Gasoline Shortage Drags On [NYT]
(AP photo/Jason Bronis)

#atlgas [search.twitter] (Thanks to Elizabeth!)

Today I ordered 4 utilities without giving my SSN to any of them, and the last 1 of the 4 was AT&T. I asked nicely to not give it. When the CSR ask for my SSN I said "gosh, I really don' t like giving out my SSN, is there a way I can get your product (the specific gas, electricity, tele. service) without giving my SSN." The gas and electricity will do a deposit - spread out over 4 months and after 9 months of consecutive payments I get my deposit back. When I asked AT&T I got the following "We need it in case you don't pay and we need to find you, and you need it to give your SSN to get any utility." I countered with 'I've just got water, electricity and gas TODAY without giving my SSN.' The CSR relented and then asked for my birth date. I got a local service land line from AT&T without giving my SSN.

The takeaway: if you're willing to leave a security deposit, some companies may accept that instead of your SSN. And it never hurts to ask—if the CSR won't budge, you might try calling back at another time to see if you find someone who's more willing work with you.

(Thanks to Jess!)
(Photo: Beige Alert)

East Tennessee and Middle Tennessee both primarily receive fuel supplies through spurs of the Colonial pipeline, which carries refined gasoline from the Texas Gulf Coast to the Northeast. [Hurricane] Ike damaged and knocked out power to many of those refineries, cutting the amount of gasoline fed into the pipeline.

The shortage should be remedied by next week, the paper reports:

The state is scheduled to receive 1.42 million barrels of gasoline over the next week, roughly matching its typical demand of 1.44 million barrels, Heidt said.

"Gas prices remain higher in Middle Tennessee" [The Tennessean] (Thanks to Jessica!)
(Photo: Pat Hawks)

Oil Is Cheaper, But Airline Fees Are Here to Stay [WSJ via Consumer World Blog] (Photo: Maulleigh)

(Thanks to everyone who sent this in!) (Photo: zncjmom)

This closing is notable because of where it is taking place and who is pulling the plug. It is, after all, one thing for enviro-friendly people in San Francisco–another city that recently lost a key Hummer dealership–to shun the brand. It is entirely different when Sin City decides the vehicles are too excessive. Towbin said Las Vegas is a custom fit for Hummer. “It’s all about bling and it’s in the desert,” he said.

And Towbin is an uber-Hummer enthusiast. He credits a Hummer with saving his life, and he counts a Hummer as his daily driver. “I feel very aligned with the brand,” he said. “Neither General Motors nor I wanted to go this way.”

One of Nation’s Largest Hummer Stores to Shut Its Doors [WSJ]

You can get a free in-home repair by calling Wolf Appliance toll-free at (866) 643-6408 between 8:30 a.m. and 5 p.m. CT Monday through Friday or by visiting www.wolfappliance.com. The model numbers are P48, PS48 and R48.

Until you get the stove fixed... don't use the 18" oven. The rest of the range is perfectly safe.

Wolf Appliance Recalls Gas Ranges Due to Burn Hazard [CPSC]

Car | Average incentive value | Average incentive value per vehicle
Hatchbacks/wagons | $1,300 | $400
Budget and small cars | 1,000 | 450
Sporty/convertible | 2,300 | 750
Sedans | 2,300 | 1,200
Minivans | 2,200 | 1,600
SUVs | 2,600 | 1,900
Pickup trucks | 3,200 | 3,100

It's important to consider other factors, like maintenance, depreciation, dealer incentives, safety and fuel efficiency. Consumer Report says, "getting a great deal on a bad car is no deal at all."

Driving a great, end-of-summer new car deal [Consumer Reports] (Photo: jurvetson)

10. Suzuki SX4
9. Kia Rio
8. Toyota Corolla
7. Pontiac Vibe
6. Scion xB
5. Nissan Versa
4. Toyota Yaris
3. Hyundai Accent
2. Chevrolet Aveo
1. Honda Fit

10 Cheapest Cars To Drive [Bankrate] (Photo: yarnzombie)

The district manager of Open Pantry Citgo, 11216 W. Blue Mound Road, reported that 4,909 gallons of gas, valued at $19,374, was removed from the underground tanks sometime between July 16 and Aug. 13.

He told police the pressure of the tanks, supply and feed lines have been tested with no indication of cracks or seeping, and the petroleum supply company has verified the delivered amounts.

Police in Wauwatosa thing the culprits were customers who prepaid for their gas and then tampered with the pumps in order to "acquire more gas than the pumps should allow." Naturally, they didn't explain the details of this technique.

Gas Thieves Take Nearly 5,000 Gallons [WauwatosaNow] (Thanks, Austin!)
(Photo: northernplateguy )

11 Least Fuel Efficient Hybrid Vehicles

1-2) (tie) Chrysler Aspen Hybrid & Dodge Durango Hybrid 19 MPG

3-5) (tie) Chevy Tahoe Hybrid, Lexus LS 600h L, GMC Yukon Hybrid 21 MPG

6) Lexus GS 450h 23 MPG

7-8) (tie) Lexus RX 400h, Toyota Highlander Hybrid 26 MPG

9-11) (tie) Ford Escape Hybrid, Mercury Mariner Hybrid, Mazda Tribute Hybrid 32 MPG

Hybrid Cars [HybridCars]

The basic facts are correct, but the advice is not. Gasoline does expand and contract a little depending on its temperature. When gasoline rises from 60 to 75 degrees F, for instance, it increases in volume by 1 percent while the energy content remains the same.

But filling stations typically store their gasoline in underground tanks, where the temperature variation during the day is much less than in the air above. The result is that the temperature of the gasoline coming out of the fuel nozzle varies very little, if at all, during any 24-hour stretch at any particular station.

CR did some temperature testing at their auto test facility where they have an underground fuel tank similar to the ones that gas stations use. Here's what they found:

While the air temperature between filling varied by up to 12 degrees, the fuel in our underground tank stayed at a steady 62 degrees F. As a result, we found that after the first few gallons were pumped, the fuel temperature coming out of the nozzle varied very little between morning and afternoon.

Like a hose sitting in the sun, gasoline that was sitting in a pump and not being dispensed tended to warm up— but those few gallons didn't make much of a difference. Ultimately, CR found that there was no reason to pump in the morning.

Even with the temperature swings we saw in the first few gallons pumped at our facility, we didn’t see a big penalty for the consumer. A 15-degree difference, for example, would result in a one-percent gain in volume. Or, just a few cents difference on the first gallons pumped—not enough to change your schedule or routine in chasing costs, especially if it might increase your fuel consumption in the pursuit.

You can get the rest of the details of their testing by clicking here.

Save on gas with morning fill-ups? Don’t bet on it [CR]
(Photo: Listener42 )

I pulled out of the lot, turned left, and I wasn't more than 200 yards away when a cop comes up behind me, lights flashing. I knew I couldn't have been speeding so I was genuinely confused. He said the woman at the United Dairy Farmers said I drove off without paying for gas.

Here's Chris' full story:

I had an interesting experience on Friday and a life lesson I think is worth passing onto other readers. On Friday I stopped at a United Dairy Farmers (local Cincinnati convenience store/ice cream parlor) to fill up while gas is relatively cheap. I pulled up to the pump, swiped my card, filled up, and paused before printing the receipt. Usually those things just end up wadding up in my pocket or under the seats of the car, but what the hell, I hit yes anyway. I then went inside to get a soft drink.

"Anything else?" the cashier asked. I said no, paid in change, and went back to my car. I pulled out of the lot, turned left, and I wasn't more than 200 yards away when a cop comes up behind me, lights flashing. I knew I couldn't have been speeding so I was genuinely confused. He said the woman at the United Dairy Farmers said I drove off without paying for gas. I said that was incorrect, and he said "She said it was a silver car, and she pointed at yours." I do drive a silver car, but I had paid for gas, and wait! I told the officer I had my receipt, and he wrote down the details: Amount, pump number, last 4 of my credit card, and the time. I also pulled out the credit card I paid with and my license, just to verify everything was on the up and up. He was cool about it, apologized, and I was on my way.

Lesson here is to always print that receipt out. I rarely check it against my statements now that I don't fill up as often. But without that 3x1 strip of paper I would have had a totally different story to tell. Needless to say I won't be taking my business to United Dairy Farmers anymore - being falsely accused of theft is a dealbreaker.

(Photo: Getty)

Oil Prices Tumble Again; Stock Markets Surge [NYT] (Photo: hanapbuhay)

• What's The True Cost Of A Trade-In? Use Edmonds' calculator to price-out the cost of a trade-in. The results may be surprising: trading a 2005 Ford Expedition for a 2008 Toyota Highlander hybrid won't produce savings for almost 15 years.
• Is A Small Car Practical? You bought a SUV for a reason, right? RIGHT?! Yeah, think about that for a moment before looking at a new Smart.
• Are You Thinking With Your Brain Or Your Gut? Gas prices are rising, but the overall cost of ownership is stable. Your insurance bill is probably the same, and your mechanic isn't raising prices. Now might seem like the right time to get a new car, but “if you’re selling an S.U.V. or trading it in, you’re selling an asset at the low ebb in its value and trying to buy an asset that’s been bid up in value,” says Mr. Nerad of Kelley Blue Book. “In stock market terms, this wouldn’t be a propitious time to make that kind of trade.”

Is it worth trading in your gas guzzler? [Edmunds]
Ditch the Gas Guzzler? Well, Maybe Not Yet [The New York Times]
(Photo: Getty)

[via BudgetTravel] (Photo: Cubbie_n_Vegas)

1. Meter Jump
You go to put gas in but before you pull the nozzle switch, there's already a dollar amount on the meter. This usually happens because some part inside is worn out. When you hit the activation switch it's supposed to recharge itself with a bit of gas, but when meter jump occurs, the meter is charging you for the gas that's charging the system.

2. Meter Creep
The nozzle clicks off because it thinks the tank is full, but the machine keeps adding pennies even though no gas is flowing.

3. Short Volume
Can happen for a number of reasons, but essentially the pump is not pumping as much gas it says it is.

4. Big Sign, Little Price, But Little Sign, Bigger Price This is when the big sign facing the road shows a lower price than is on your pump or on your receipt. With gas prices fluctuating the way they do these days, this usually happens because the gas station didn't get a chance to change the sign yet.

For whatever reason, Chrysler is currently advertising a "Full Tank of Fuel" as a "free feature". That's right. ONE SINGLE TANK OF GAS. I can't imagine buying a car and being told "Thanks for spending $20,000!" then getting into the car... and find out it's riding on empty.

Hey, at least they won't let you uncheck it. (We tried.)

According to CBS2's article,

"We saw a substantial drop in the price of crude oil, which it appears gas station owners were in a hurry to pass on to consumers," said Phil Flynn, Vice President an Senior Market Analyst at Alaron Trading.

"So often we hear gas prices rise like a rocket and drop like a feather, this time, they're starting to drop like a rock and that's a good thing," Flynn said.

That's partly because demand is down about 4 percent from where it usually is. Many people have put the brakes on driving this summer because it costs too much.

"We could see $3.70 in the city and if we get really lucky, maybe $3.50 by Labor Day," Flynn said.

Yes, there is a fine line between educated speculation and full on media whoring, but does Phil look like the kind of guy who would simply say what we all want to hear, just to get his name in the news? Ok, don't answer that.

Expert: Gas Prices Dropping Like A Rock [CBS2]

As Upgrade: Travel Better and Elliot.org point out, it's just another way to try to recoup costs without having to increase the "landing price," the upfront price shoppers see when they first encounter a merchant's offer.

There are two ways around the fee. You can either purchase your Spirit airlines tickets at the airport, or you can buy them on Orbitz. There's no "web convenience fee" for Spirit Airline tickets bought on Orbitz, and Orbitz's fee is less than Spirit's. Let's just hope the other obsessively copycat airlines don't pick this one up too.

Below, Spirit Airlines verbiage for the fee.

Convenience Fee of $5.00 per traveling customer per one way travel applies to all reservations with the exception of those bookings created directly at Spirit Airlines’ airport locations. All fares are subject to change until confirmed and purchased.

Money talks, B.S. flies [Upgrade: Travel Better]
Watch out — Spirit is socking passengers with surprise fees! [Elliot.org]

(Photo: Cubbie_n_Vegas)

Gas stations fall under the watchful eye of New Jersey's Office of Weights and Measures, so we think Matt should report this gas station immediately. Unlike more lackadaisical government agencies, the folks at Weights and Measures are usually pretty enthusiastic about their jobs, particularly when the job involves busting shady gas stations for overcharging their customers. If something illegal is going on here, they're the ones to put a stop to it.

Here's an example of how one Consumerist reader brought down the sword of justice on a Wisconsin gas station. Now it's your turn.

New Jersey Office of Weights And Measures Contact Information [New Jersey]

UPDATE: Matt filed a report with the New Jersey Office of Weights And Measures (which he forwarded to the Consumerist), and, independently, Sunoco contacted us to confirm the location of the gas station so that they can conduct their own investigation.

ShopSmart [Official Site]

Over the past two weeks, I have ended up with two gallons of milk, purchased at different stores from different dairies, that went bad before their expiration date. When we asked for a refund at the second store, the manager noted that they had gotten several complaints about sour milk lately, which was unusual for the store. The manager wondered whether truck drivers were turning up the thermometer on their refrigerator system or skipping it altogether to save gas...

I live in Brooklyn and a few months ago, even before the summer, I myself started to notice my milk was spoiling a lot faster too. As in, a matter of days. I thought our corner store was just being cheap. I've since switched to organic milk because it lasts for weeks. Has anyone else noticed this? If so, what part of the country are you in, what brand do you buy, and from what store?

(Illustration: wedgienet)

Dear MyGallons Member,

We developed the MyGallons program because, like you, we wanted to help solve the problems caused by the rising price of gasoline. We are proud of what we created and look forward to providing you with this innovative service in the very near future.

Due to difficulties with a key supplier, we are unable to deliver the service we promised to you at this time. We apologize for the delay. You will be receiving a refund on your credit card for 100% of the membership fees that you have previously paid.

To express our sincere thanks for your loyalty and support, once we secure a new payment network, you will enjoy the benefits of the MyGallons program free of membership charges for your first year.

Rest assured, we are working diligently to secure a relationship with a new national card processing company. We will keep you updated every step of the way as we overcome the challenges we face together.

Sincerely,

Steven Verona
Founder and CEOMyGallons LLC

The whole MyGallons saga began when the media fell all over themselves about the gasoline hedging start-up, prompting the BBB to investigate the company's ability to process transactions at the pump.

The BBB found that MyGallons.com had no contract with a processor, telling Consumerist that USBank, the company that was touted in MyGallons.com's press release, had ultimately declined to participate.

MyGallons.com posted a notice claiming that USBank backed out. The BBB nevertheless issued a poor rating to MyGallons, because despite their lack of contract to process transactions, the company was still collecting membership fees. Later, the BBB met with MyGallons and revised their rating to NR (no rating) after the company agreed to suspend accepting new memberships.

Boy, that was one hell of a press release, wasn't it?

From the NYT:

Mr. Bernanke was especially pessimistic about any easing of energy prices, dismissing suggestions that they were being driven by speculation in futures markets. Instead, he said high energy costs reflected the markets’ recognition that demand was outstripping supplies.

“Over the past several years, the world economy has expanded at its fastest pace in decades, leading to substantial increases in the demand for oil,” Mr. Bernanke said. “On the supply side, despite sharp increases in prices, the production of oil has risen only slightly in the past few years.”

Before Mr. Bernanke’s remarks, the Labor Department reported that wholesale prices rose 1.8 percent in June, making for the fastest 12-month inflation rate in more than a quarter century.

Economy Will Stay Sluggish, Bernanke Tells Congress [NYT]
(AP Photo/Susan Walsh)

To that end he sends this above example of a sign he saw at a gas station. Is this type of charge allowed?

Brian writes:

Under the VISA rules, how do you tell a "surcharge" applied to a credit/debt card transaction vs a convienence charge?

My wife recently went to get gas at a local gas station that was historically the highest priced gas in the area. Upon pulling up to the tanks, the actual low price was modified up by .10 a gallon for using any non-cash method of payment. Under MC/Visa rules, this looks to be prohibited, but how can you tell?

She didn't know any better and got gas there anyway, but when she got home I knew it was fishy.

Brian, you were right to think this was fishy. Gas stations are supposed to advertise a "cash discount" rather than a fee for using a credit card. This prevents people who pull over because they saw the posted price from getting an unpleasant surprise when they go to pump their gas. You should report this gas station to your credit card company.

An article from the Houston Chronicle shows that a some gas station owners don't understand their credit card contracts:

Bolduc said his contracts with the credit card companies forbid him from offering a discount for cash.

LeLacheur said some stations have contracts that allow them to offer a cash only discount and those discounts are becoming more common.

Other stations simply defy the credit-card company and let the company sue them, he said.

Visa Inc. and MasterCard Worldwide said in corporate statements that retailers, including gas stations, can offer a cash-only discount.

Visa said the cost of accepting credit cards is set by oil companies, not by Visa.

A "convenience" fee only comes in to play when the business normally doesn't accept credit cards. Clearly, this doesn't apply to gas stations.

For a more in depth explanation of the rule, click here.

Card fees can eat up profits at the pump [Houston Chronicle]

The Arizona Daily Star explains:

But there is a catch to the radio gas deal — isn't there always? — as visitors to the site are required to provide a load of personal information.

This is followed by a seemingly endless barrage of surveys until finally visitors get the "opportunity" to apply for high-interest credit cards or to purchase book and coffee club memberships or entertainment books.
Essentially, if a person buys one of these products he or she is eligible for a gas card that will cover the difference between the actual cost of gas and $2.49 a gallon for 15 gallons. So, with gas prices hovering at $3.80 a gallon, a person would in theory get a gas card for $20.

So is it a scam?

"We are not saying that radiogasdeal.com is a scam, but we would urge consumers to use extreme caution," a BBB spokesperson said.

Here's a link to the company's BBB report.

She also went on to say consumers should be wary of any combination of the words "deal" and "gas." Good advice.

Gas-card 'deal' on radio may be no deal at all [Daily Star]

The BBB says:

The Better Business Bureau challenged the company’s advertising regarding their offer, and the company met with the Better Business Bureau on July 9, 2008 and has modified it claims. The company’s merchant services provider, PowerPay, has assured the Bureau that membership fees processed by them on behalf of MyGallons.com customers have been placed in a non-interest bearing escrow account. As of this date Mygallons.com acknowledges it does not have a contract in place with a vendor who can process transactions with gas stations across the country, and they have suspended accepting membership fees. The Bureau will issue a new report as the company’s evaluation continues.

MyGallons.com had originally claimed to be partnered with US Bank, but an investigation by the BBB revealed that that program had ended and that MyGallons.com was operating without a contract in place. The BBB has amended MyGallons rating from "F" to "NR" or "No Rating."

MyGallons LLC [BBB](Thanks, Teresa!)

Activists Keep the Faith, if Not Their Money [Washington Post] (Thanks to ejangles!)