No-name gasoline no bargain after supply dries up

Loyalty to your local mom-and-pop gas station may come at a price.

Customers buying gasoline at grocery stores and other independent retailers may pay more than those shopping at name-brand outlets after the biggest gasoline pipeline in the U.S. sprung a leak in Alabama on Sept. 9. Colonial Pipeline Co. has proposed restarting the line on Sept. 22, according to the Alabama Emergency Management Agency.

When natural disaster strikes or supplies are suddenly cut off, refiners have to prioritize deliveries to wholesale terminals of name-brand gasolinefor retailers like BP or Citgo, according to Patrick DeHaan, GasBuddy senior petroleum analyst. Whatever is left over trickles down to unbranded stations.

“The leftovers that aren’t guaranteed, that’s the least focus of any oil company,”DeHaan said by phone from Chicago. Normally, “those leftovers go very cheap. When gasoline is in very short supply, there are few leftovers to go around,” he said.

The result? Gasoline stations that normally sell the cheapest gas in town will have no choice but to raise prices. For example, unbranded gasoline sold by Gulf Oil LP at a Doraville, Georgia, terminal near Atlanta was 23 cents a gallon higher than branded fuel marketed by Citgo at the same location on Friday, according to data compiled by Data Transmission Network.

“As wholesale marketers are facing uncertain supply, they will allocate by price,” said Tim Columbus, general counsel to the Society of Independent Gasoline Marketers of America by phone from Washington. “When that happens, it is not at all unusual to watch unbranded prices escalate above branded prices. At the retail level, unbranded guys will do what they can to hang onto their share.”

In response to the leak, the U.S. Environmental Protection Agency issued an emergency waiver to relax fuel-blending regulations late Friday. The waiver, which allows for combinations with non-reformulated fuel, covers 11 eastern states and Washington, D.C., and is in effect through Oct. 6.

The price inversion, which happens at wholesale terminals known as racks, is most pronounced in the markets that are far from refineries and depend on Colonial Pipeline for deliveries, GasBuddy’s DeHaan said. Dedication of name-brand suppliers to the Georgia market became more apparent on Friday when a vessel that loaded fuel at Marathon’s Texas City refinery made an emergency turn to Savannah instead of its original New York destination.

Lines of customers could start to grow in the tightest markets, according to DeHaan.

“That’s probably inevitable,” DeHaan said. “Word is starting to get out that there’s a pipeline outage. People freak out any time you talk about possible outages or disruptions.”

With assistance from Caleb Melby