As the stay-home order slowly lifts and some Minnesotans return to their vehicles for Memorial Day weekend, gas prices are the lowest in 17 years.
Averaging about $1.85 per gallon in the Twin Cities, according to GasBuddy, it’s the first time that gas has dipped below the $2 threshold for the holiday weekend since 2003 when it was $1.46 per gallon on average.
Still, average prices are up about 20 cents in the last week, according to GasBuddy.
“The low-priced start to the summer may offer some respite from the dire economic conditions many are stuck in,” said Patrick De Haan, head of petroleum analysis at GasBuddy. “With Americans reluctant to get on a plane or train for the holiday weekend, which is likely to continue throughout the summer, gas prices may slowly continue to rise, but prices will remain at a steep discount to last year.”
As more Minnesotans get back on the road for the holiday, they won’t notice the large price spreads seen in April when stations in Red Wing were selling gas for 89 cents a gallon and some Twin Cities stations posted prices of $1.89 per gallon.
Such a wide price spread is unusual, according to De Haan, and usually results from quick, unusually large drops in crude oil prices. Under normal circumstances, price spreads throughout the Twin Cities range from 20 to 30 cents, not a dollar.
Mike Wilson, of Wilson Oil Markets and VP Race Fuel stations in Red Wing, said part of the reason he was charging only 89 cents a gallon after the oil market collapsed is low overhead.
“We’re a plain and simple gas station, not a convenience store that sells hot dogs, chicken and produce,” he said.
Convenience stores that sell candy, food, souvenirs and personal items found their inside sales falter when consumers were filling their tanks less often, he said. Some had to raise gas prices to make up for lost sales inside the store.
“Convenience stores might have $1 gasoline in their storage tanks, but they’re charging $2 to make up for lost business inside,” Wilson said.
De Haan said stations take a risk when they lower prices too quickly, particularly during the uncharted waters created by a pandemic.
“On a normal day, a gas station may sell $5,000 a day making 10 to 15 cents a gallon margin. But suddenly the volume of gas sold drops by half because people aren’t driving as much,” he said. “Then you’re only selling $2,500 a day. Now a station needs to double its margin to keep revenue consistent.”
That doesn’t always work for stations with an eager competitor nearby. The higher-priced station may have to lower prices and accept a smaller profit margin just to keep customers.
While Minnesota has a low price minimum, it’s often warehouse clubs such as Costco and Sam’s Club that keep prices hovering as close to the floor as possible.
“Costco keeps their gas prices low to entice customers into their main store where they make more margin,” De Haan said.
Twin Cities customers have grown used to pockets where prices are lower, including Burnsville, Lakeville and Fridley. Usually, neighborhoods with lower gas prices have a Sam’s Club (Fridley), a Costco (Burnsville) or an off-brand such as Hi Hi Market and Gas (Lakeville).
Generally, the lower-priced locations are in the suburbs.
One exception in Minneapolis is the 36 Lyn Refuel Station at W. 36th Street and S. Lyndale Avenue. Owner Lonnie McQuirter was charging $1.69 per gallon Thursday when other neighborhood stations were charging $1.75 to $1.90.
“We’re more aggressive on price,” McQuirter said.
Ivan Gil lives a few blocks from Lyn Refuel.
“This station has the lowest prices in the area, which is really unusual because you don’t see very many low prices near Uptown,” he said. “It’s even cheaper than Minnetonka. This is an honest place.”
When pressed, McQuirter said part of the reason for his low prices is simple.
“We take a lower profit margin,” he said, “much to the frustration of our competitors.”
John Ewoldt • 612-673-7633