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

Citrus Heights, California, USA - Jun 28, 2013: Vehicles waiting in multiple lines for the gasoline at Costco, members only, gas station.
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.

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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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About the Author

Vance Cariaga is a London-based writer, editor and journalist who previously held staff positions at Investor’s Business Daily, The Charlotte Business Journal and The Charlotte Observer. His work also appeared in Charlotte Magazine, Street & Smith’s Sports Business Journal and Business North Carolina magazine. He holds a B.A. in English from Appalachian State University and studied journalism at the University of South Carolina. His reporting earned awards from the North Carolina Press Association, the Green Eyeshade Awards and AlterNet. In addition to journalism, he has worked in banking, accounting and restaurant management. A native of North Carolina who also writes fiction, Vance’s short story, “Saint Christopher,” placed second in the 2019 Writer’s Digest Short Short Story Competition. Two of his short stories appear in With One Eye on the Cows, an anthology published by Ad Hoc Fiction in 2019. His debut novel, Voodoo Hideaway, was published in 2021 by Atmosphere Press.

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