How many gallons does the average gas station's underground gas tank hold?
September 1, 2005 3:00 PM   Subscribe

How many gallons does the average gas station's underground gas tank hold?

Last night, I watched a local news report with a small gas station owner that mentioned he was setting his prices based on what he expected to pay for the next delivery. It seems like almost a borderline form of gouging, since he'd be getting extra profit off of gas he paid a much lower price for.

After watching gas prices rise an unbelievable 60 cents a gallon here in Pennsylvania over the last 24 hours, I was just curious how much extra a gas station owner might clear from pricing gas he paid $X for when he's charging $X + his typical profit per gallon + 60 cents.
posted by MegoSteve to Travel & Transportation (10 answers total)
That's been pissing me off lately too. Gas here in eastern Canada seems to have jumped to $1.40/L and I've been wondering how often they get deliveries and how they're charged for them.

Did the gas you have underground suddenly cost you more? What happens if the price spike is over before you run out of your store of gasoline?
posted by ODiV at 3:17 PM on September 1, 2005

My husband was a wholesale marketing representative for a very large oil company, and he says that, depending on the size of the station, USTs hold anywhere from 5,000 to 35,000 gallons. Big truck stop? Larger tanks. Small neighborhood convenience store? 10,000 to 15,000 gallons.

We have a small diesel tank at our farm, and it really doesn't look very big at all -- but it holds 1,000 gallons. Tanks are deceptively small.

As far as markup goes, station owners only make about 5 cents per gallon or less. The really high prices might not be the fault of the individual station owner -- and besides, many stations are now owned by the oil companies themselves. OTOH, they're not going to be caught on the low end of all the stations in their area either. Also, remember they have to purchase the $3.30/gal gas with profits made from $2.10/gal gas. That's the chief reason they're raising prices as they are now -- to be able to afford to refill their tanks with the more expensive product.

And there isn't any 'let's all get together and rip off all the people on this street by figuring out what we should all charge' meeting between gas station owners. That's collusion, and it's clearly prohibited by the anti-trust laws.
posted by lambchop1 at 3:32 PM on September 1, 2005

MegoSteve, let me introduce you to the concept of "replacement cost." Gas-station owners need to price their gas according to projected future cost in order to make sure that they've got enough money to pay for the next fuel reload, if wholesale prices are rising sharply.
Retailers determine their prices based on “replacement cost” – the cost to acquire the next shipment of fuel. These wholesale price changes are transmitted nearly instantly by electronic communications. This price is almost always different than the cost of the gas that they have in the tank.

Because of the enormous volume of fuel sold – a typical store sells more than 100,000 gallons of gas a month – retailers must price their fuel based on their estimated cost of the next delivery.

Even slight wholesale price variations can increase a retailer’s replacement cost by hundreds – or even thousands – of dollars.

The importance of replacement costs is particularly acute for smaller businesses, which have less cash on hand to meet payments. Many U.S. convenience stores are owned and operated by small businesses: 54.3 percent of the 124,500 convenience stores in the U.S. are mom-andpops,”
operating just one store.
Source (PDF)
posted by enrevanche at 3:40 PM on September 1, 2005

I heard this evening that a gas station received 10,000 gallons of gasoline yesterday and the public had purchased it within 24 hours! However, I cannot verify how many underground tanks were located at this gas station.
posted by Mckoan1 at 3:53 PM on September 1, 2005

Response by poster: Enrevanche: Do gas stations mark gasoline down in anticipation of future price drops?
posted by MegoSteve at 3:53 PM on September 1, 2005

Interesting that the fixed size of what they can stock has that impact; I remember reading an article some years ago about the fact that one of the things that could kill an independent magazine/comic book almost as surely as declining sales was increasing sales - the increasing orders requires larger and larger print runs which require larger outlays of cash. However the ordering on magazines and comics occurs about 2-4 issues in the future. So you print 1X, then 1.3X then 1.7X and THEN you get the money from the 1X sales, etc.
posted by phearlez at 3:57 PM on September 1, 2005

Mego - I am sure they do, provided there is competition pressure. I think the question ignores the core point, however: most stations could not afford to buy replacement gas if they didn't sell the current stock at what it's going to cost to replace it.

Given how little the little guys make on the gas I don't think this difference adds up to much. Here's an article on what the local station makes out of the sale and here's an article on what percentage of the price of a gallon goes to who, Here's an article on price change passthrough.

8% is pretty stinky resale profit. If someone cheats them out of one car's worth of gas they've lost 12 tanks worth of profit. Almost noplace else you shop makes less than 30% profit on the items they sell to you. I'm not going to begrudge them a few percent on 4-8 days worth of gas supply.
posted by phearlez at 4:08 PM on September 1, 2005

most stations could not afford to buy replacement gas if they didn't sell the current stock at what it's going to cost to replace it

Because gas-station owners, unique in the business world, are fundamentally unable to obtain even short-term loans.
posted by ROU_Xenophobe at 5:24 PM on September 1, 2005

MegoSteve: In almost no other retail situation do prices flux like this and given that stations do adjust their prices up and down... yes they do mark down in anticipation.

It sucks all around, but that's the argument for using less oil overall. Don't like it? Don't use the product.

Not trying to be snarky, honest.
posted by FlamingBore at 5:43 PM on September 1, 2005

You also have to take into consideration that the gas industry, like many industries, works on a 'just in time' basis. Once gasoline is refined, it almost never stops moving -- it immediately flows down the pipeline to a head point, where it's stored very briefly (if at all) before it's put on a truck and moved to a gas station, where it sits very briefly in the tank before it's pumped into your gas tank and burnt.

Very rarely are those underground tanks at gas stations full. It's incredibly uncommon to fill them, actually ... instead, to keep the amount of capital that they have sunk into their inventory to a minimum, they'll simply fill the the tanks from a tanker once or twice a day... every other day at the most. Therefore, not only do gas stations have to take into account replacement cost, they have to take into account they're going to have to pay in six hours to get enough gas to last them until their next fill. Even though gas prices are skyrocketing and (no offense to anyone here, I'm talking about the people who were bitching at the bar tonight) clueless consumers are bitching up a storm, some gas station owners are LOSING money right now because they didn't raise prices enough.

Additionally, individual gas stations rarely set their own prices. The gas is priced by brokers at trading offices that tell them how much they're going to have to pay to get gas next time they're scheduled to fill up.
posted by SpecialK at 10:58 PM on September 1, 2005

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