Santa Fe gas cheaper than state average
Even as prices rise, area benefits from heavy production in West Texas
Remember when Santa Fe was the state’s poster child for exorbitantly high gas prices? Ah, how times have changed. Gas in Santa Fe has cost less than the state average since July, with brief exceptions, according to the Oil Price Information Service, an industry analysis firm. And though fuel prices are going up across the country — a gallon of regular unleaded in town was, on average, 32 cents cheaper a year ago than it is today — it’s still cheaper to fill up here than in many places across the state.
Understanding how the price of gasoline fluctuates at the pump, and why Santa Fe has fared better at the pumps than many other cities, isn’t easy. Gas station owners are a secretive bunch, according to industry insiders. But gas prices boil down to simple economics — supply and demand, with complicating factors like local competition thrown in.
It starts with futures contracts at the New York Mercantile Exchange, where the price of fuel from refineries is set, according to the Oil Price Information Service. From there, brand-name companies, like Valero or Chevron, make long-term contracts with wholesalers and franchisees. A spot market allows big suppliers to fill gaps and small independents to benefit from market fluctuations.
New Mexico currently benefits from petroleum overproduction in West Texas, said Denton Cinquegrana, chief oil analyst for Oil Price Information Service. “Production has outstripped the capacity to move it away,” he said.
Although pipelines are backed up, oil wells keep pumping, adding further to the supply, Cinquegrana said. That means refineries in Texas and New Mexico that are relatively close to the oil fields have access to cheaper, so-called “stranded” petroleum, he added.
Two refineries operate in New Mexico — one in Artesia and the other near Gallup — but most gasoline within state pumps comes from Texas refineries in Amarillo, Borger, Lubbock and El Paso, with some from refineries in Colorado, said Ricardo Baca, state executive for the New Mexico Petroleum Marketers Association.
From the refinery, the next step on the supply chain is the fuel distribution point, or “rack,” where wholesalers pick up fuel. Albuquerque is the distribution point, on a pipeline, closest to Santa Fe, Baca said. From that point, trucks carry gasoline to Santa Fe and points north. The farther the gasoline travels from the rack, the more cost is added to cover transportation. So gasoline that’s $2.71 a gallon in Santa Fe, on average, is an average $2.80
in Taos.
At the gas station, the retailer adds to the price per gallon to keep the doors open, also known as “laid-in costs,” Baca said. The pump is also where federal, state and local taxes are added or recouped.
The marketplace plays a role, too, in setting gas prices.
“Gas markets generally are very competitive,” said Christopher Erickson, an economics professor at New Mexico. “You do have to match your competition, but even within a city you might get some variation.”
A proliferation of gas stations helps keep a lid on gas prices. The presence of “low-cost leaders” like Sam’s Club can put downward pressure on the price, too, Cinquegrana said. Fuel at the convenience store/gas station chain Allsup’s in Santa Fe was priced in the $2.60 range last week.
As of Friday, the 10 lowestpriced gas stations in Santa Fe had gasoline between $2.60 and $2.67 per gallon, according to gasbuddy.com.
“Long story short, there is probably no one reason behind the shift in Santa Fe pricing strategies,” Cinquegrana wrote in an email Thursday.
The methods by which gasoline retailers price their product are treated as trade secrets, Erickson noted, although the end result — prices — are no secret at all. They’re boldly proclaimed on high-standing station signs.
Charley Brewer of Brewer Oil Co. owns 36 stations in New Mexico, including five in Santa Fe. He’s also a jobber, selling gas at wholesale to other station owners. His method of pricing gas at the pump is pretty straightforward, he said Tuesday. He takes into account his overhead costs — employee wages, insurance, credit card fees, for example — and what his competitors are doing.
“I get up in the morning and probably do the same thing you do,” he said Wednesday. “I drive to work and drive by gas stations and look at prices. It’s not hard to figure out what people are doing.”