Gasoline Classes of Trade

The gasoline distribution system in the United States is massive.  Moving gasoline to approximately 200,000 retail outlets throughout the United States has required the development of a complex distribution infrastructure.    The complexity of the market structure is reflected in the multiple pricing levels ("classes of trade") for gasoline. Thus, before it reaches the consumer, gasoline may be sold in one or more of the following wholesale transactions:

By refiners as it leaves the refinery:  so-called "refinery gate" prices.

By refiners or by resellers as it leaves a distribution terminal:  so-called "rack" prices, named after the super-structure of pipes,         hoses, and manifolds that delivers the product into a tank truck or tank wagon.

By refiners or resellers to retailers at the gasoline service station:  so-called "dealer tank wagon" prices.

Both refinery gate prices and rack prices are influenced primarily by spot and/or futures prices.  At a minimum, rack prices will conceptually exceed refinery gate prices by the transportation cost to move the gasoline from the refinery to the terminal, usually by pipeline or by barge. 

Dealer tank wagon prices represent the cost of the product to the gasoline retailer.  In addition to reflecting overall market conditions, dealer tank wagon prices include payments for additional services that a supplier may provide to a retailer, especially a "branded" retailer -- a gasoline station that sells gasoline under the name of a large oil company. These services may include trademark, credit cards, and advertising, as well as security of supply.  Gasoline retail marketing follows a variety of structures and contractual arrangements.  Some gasoline stations, for instance, are owned by a refiner, but most are leased by the refining company to an independent dealer.  The cost structure also varies, as may the companies' marketing stance and, hence, its margin.

Pre-tax gasoline retail prices are set by retailers.  (The price on the pump reflects this price plus taxes).  Pre-tax prices reflect both the retailer's purchase cost for the product and the other costs of operating the retail outlet.   They also reflect local market conditions and factors such as the desirability of the location and the marketing stance of the owner.

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