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Cheap Gas: How Come Costco & Walmart Have Such Low Prices on Gas?

·2 min read
slobo / Getty Images
slobo / Getty Images

President Joe Biden’s decision to release part of the nation’s strategic oil reserves should lead to lower gasoline prices across the country, but it might take a couple of weeks to do so. In the meantime, if you’re scouting cheap gas ahead of the Thanksgiving holiday weekend, you might want to get a membership to Costco, BJ’s Wholesale Club or Walmart-owned Sam’s Club.

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The warehouse clubs offer the best prices at the pump right now, and it’s not even close. So how is that possible?

Simple: Warehouse clubs have the volume and financial prowess to sell gas at rock-bottom prices (and razor-thin margins) as a way of luring customers in to buy other merchandise.

Costco typically sells gas at 20 cents below the market average, CNN reported, citing input from Tom Kloza, the global head of energy analysis at IHS Markit’s Oil Price Information Service. BJ’s sells it at about 10 cents below average.

That can add up to big savings in a market where gas prices are averaging around $3.42 a gallon, and are up more than 60% from a year ago. Prices have risen so high so fast that the Biden administration has called for an investigation into whether the oil and gas industry has illegally hiked prices at the pump.

Meanwhile, as GOBankingRates reported, the Department of Energy will make 50 million barrels of oil reserves available to lower prices and bring supply closer to demand. Some consumers will feel the price impact immediately, but most will have to wait two weeks or so before gas stations nationwide will have enough fuel to lower prices.

Most gas stations are independently owned, meaning they aren’t big enough to order huge volumes at discounts the way wholesale clubs like Costco, BJ’s and Sam’s Club can. The wholesale clubs aren’t making much profit off of gas. But they are betting that consumers will seek out their low gas prices, then enter their stores and spend money on other things.

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That’s a pretty good bet when gas prices are as high as they are now.

“People are seeking out the clubs because of the gas,” Michael Baker, retail analyst at D.A. Davidson, told CNN. “It’s U.S. consumers’ nature to go out of their way for lower gas prices.”

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This article originally appeared on GOBankingRates.com: Cheap Gas: How Come Costco & Walmart Have Such Low Prices on Gas?

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