Gasoline costs can fluctuate rapidly, especially when there is turmoil in oil-production and refining regions. Some of the volatility in gasoline costs comes from the fuel rack price that a fuel retailer pays upon delivery. Fuel retailers need to understand what the rack price is and why it is so important to their businesses.
What is rack price?
Refineries sell gasoline to wholesalers and directly to some fuel retailers. When the driver pulls the truck up to load the tanker, he or she parks in a loading rack. The truck driver gets an invoice for the gas to be delivered to a particular client. That invoice indicates the “rack” rate the client will need to pay for the delivery, which is usually set once a day.
The rack price includes the cost of the gas itself, as well as transportation, overhead, and profit costs. The price can vary from terminal to terminal and depends on the cost of crude oil and related refining costs. The rack price also depends upon the distance between the fuel retailer and wholesale terminal. A gas station located far from a terminal is going to pay a higher fuel rack price than one located just down the street.
When it comes to branded and unbranded fuel, the rack price is going to be different. Branded fuels are almost always more expensive than unbranded fuels. Advertising costs, additives, and brand recognition all increase the cost of branded gasoline. Branded fuels also come with contracts that ensure retailers have a steady flow of fuel, even when supplies are scarce.
Why is rack price so important?
For the average consumer, fuel rack price does not mean much. However, for the fuel retailer, this price has an impact. That rack rate is what tells them to raise their prices. If rack rates are going up, the fuel retailer needs to raise their prices to cover the rising costs. When the rates go down, the retailer will be slower to respond to the dip in their gas prices. Unless a direct competitor lowers prices, the retailer can get a bit more profit for every gallon of gas sold.
If you need wholesale fuel, contact us here at Kendrick Oil. We provide high-quality fuel products and services throughout Kansas, Oklahoma, Texas, and New Mexico. You can call us at (800) 299-3991. You can also Contact Us by email for more information About Us and our services.
