why do gas prices rise in 10 cent increments?

First, they don't always rise or fall in 10 cent increments. Not in my part of the US. I've never seen such neat behavior at the retail pump. In the last few weeks gasoline has risen about 30 cents per gallon total, yet the increases at one local station have been 2 cents here, 5 cents there, 6 cents another time.

Sometimes you will see what marketers call a "price end effect". Dealers would rather price it at $2.49 9/10 instead of $2.50 9/10 because to the emotional buyer, something ending in the next higher zero seems sooooooo much more expensive. In fact, this price end effect is exactly the reason that they use tenths of cents always at .9: they practically slip an extra cent into the price that way.

Margins vary by territory; how far the retail station is from the pipeline dictates transportation costs. So does competition from nearby stations. Here's how I predict retail gasoline prices. I watch the price of wholesale gasoline, the unit price of 55,000 gallon lots, or 1,000 bbl. A site like bloomberg.com, which I have no financial interest in, will report a nearby futures contract and update throughout the day. Now compare your local retail price (for unleaded regular, at a gas price website), during a period of 2 weeks when wholesale gas is relatively stable. You'll have a good idea of the wholesale-to-retail markup. This markup will vary with the season. It's lowest in late January when no one is driving or on vacation, and they're too busy paying those Xmas credit card bills. The margin begins to rise sharply in May, peaks during the summer, recedes in early autumn, jumps up some during TnxG to New Years, and finishes slumping by the end of January. Around here in 2005, even at the worst time after Katrina, when people were screaming "Gouging!", the margin was 73 cents. This past summer in 2006, when gasoline was supposedly plentiful, the margin ballooned to a record $1.04! Now that was gouging. And it's nearly 73 cents now, but it's winter.

Price changes take about 7 days to make it to retail except in times of panic, when it drops to about 1 - 4 days. Slower on the way down (seller's greed about giving up the swollen margin) than on the way up (inelastic demand even in panic, and the seller knows it).

Right after Katrina hit, I saw $2.59 retail and $2.55 wholesale, so I added 73 cents to wholesale for margin, and I put out an email to friends: Top off the tank, regular gas to soar to $3.28 in 1 - 4 days. It actually went to $3.24, and a few thanked me. If I see a move of at least 20 cents, I'll put out an email. If it's a drop, it'll say: run down the tank, prices to plunge. It happens about 2 or 3 times a year.

For every $1 rise in the price of crude oil, it adds about 3 cents to a gallon of gasoline/petrol.

If you're talking about the price DIFFERENCE in grades of gasoline at a particular gas station, that sometimes does show neat increments. At $2.50 a gallon for 87 octane, many stations will add 15 cents for 89 octane and another 15 cents for 92 octane. They'll also add 15 cents to each grade for full serve. But that's just market forces: the market accepts the station owner's laziness about calibrating retail differences to his cost differences. If it didn't, he wouldn't sell much gas that way, or he'd sell too much, and would raise his price to bring supply into equillibrium with demand. This way, he can always tell the high school kid who's changing the giant numbers one figure for regular, and the kid knows to add 15 and 30 cents for the other two grades. 15 more for full serve. Keeps it simple. Ultimately, supply and demand rule.

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i wondered that too. it increases in 10 to 12 cents increments every week, but decreases in 2 cents every 4 weeks.

Gas stations don't have enough pennies.