# A solution to gas prices?

It may be too little too late, but the government in Nova Scotia, Canada is proposing and interesting new law (CBC):

For example, instead of raising the price three cents, the oil companies will take into account the law and the time lag it requires, and give notice for a ten cent raise in the price.

Perhaps the law should be to prevent price gouging. When the oil is purchased off the wellhead, that final retail price cannot be applied until that oil is actually refined and delivered at the pump. It appears right now that when a new wellhead price/barrel is announced, the oil companies automatically raise the equivalent price at the pump. Since all oil already purchased at a lower price is travelling through the system (wellhead to pump), the oil companies are reaping windfall profits.

And why wouldn’t oil companies anticipate this and raise prices in advance? If you tamper with the pricing mechanism, introducing more uncertaintanty into the market, the net effect is most likely to be **higher ** overall prices.

Point taken.

My point was that the wellhead price/per barrel would convert to a price/gallon using a formula based upon thr current costs/profit spread.

Huh? Say a \$40.00/barrel wellhead price equates to a finished product \$2.00/gallon gas price (ignore all other products for the moment). If the wellhead price bumps up to \$41.00/barrel the established ratio applies so the price of a gallon of gas could only rise by the percentage equivalent. However, the new gas price only applies after the that gas is actually available at the pump. Again, this would require establishing the timeline from raw product to finished product. My figures are old but it used to take anywhere from 60 to 90 days for a barrel of oil to make it to market as a finish product. Assuming the latter date as an example, if the price of a barrel of oil jumps today, then to be fair, the privce at the gas pump cannot rise for 90 days.

Yes, I know the entire plan is practically bull crap and unenforeable. The entire point of the exercise was an attempt to illustrate how new prices are continualy applied to the product purchased at a lower price - price gouging.

I remember in the days BCP (before computer pricing) grocery store clerks stocking the cans of beans on the shelf (with a higher price) put them on the shelves behind the old stock (with the lower price). Then shoppkeepers decided to reprice the old stock with the new price and grab a few cents/can of price gouging profit. Now with the system barcoded and computer scanned, as any new products come in (with a higher price tag), any oldstock automatically assumes the higher price. This means there is a continual price gouging going on with everything we buy. In the case of gasoline prices it is just more obvious because we know the current wellhead cost price and see an immediate price rise at the pump. Yet nobody rasise the issue of gouging even though it should be relatively easy to track it.

I think it will add more compatiton. I think of several times where I drove past a gas station thinking there might be a cheaper one down the road on my way to where ever. Only to find I drove past the cheapest one. Way too often in fact. It’s never seems worth the trouble to drive back to the cheaper one. I will however feel like kicking myself. I suspect alot of other people do the same thing. If the prices are known in advance the one with the cheaper gas will get alot more business. This will make compatition to have lower prices more intense. The net effect is most likely to be lower overall gas prices.

We could always go the PEI route and regulate the gas prices. The provincial government has a minimum and maximum profit margin set and if the gas companies want to increase or decrease their price of gas they have to apply to the government stating the reasons why.

From what I have seen the price you pay overall might not be much less, but they are much more stable so you know what to expect. I’m pretty sure they are holding steady at about 86.5 cents per litre as opposed to our fluctuating between gas war prices of 76 cents (lasted about 1 day) then up to 96 cents.

Wouldn’t it be more effective to encourage independent gas stations that could buy the commodity (gas) from all suppliers instead of being tied to a supplier/owner? The current setup has PetroCanada pumping the oil and selling the gas to its own stations. What if Shell is able to produce cheaper gas? The PetroCanada station owner can’t buy from them and so must continue to sell their higher price gas. Where is the competition to produce and distribute cheaper gas when the distributors are locked into a single supplier?

Now, how to actually remove oil companies from the gas pumps would be interesting without invoking invasive legislation would be an interesting question.

I’d also point out that no matter how cheap you can make gas it is ultimately tied to crude prices. If those continue to rise then provincial governments restricting gas prices will be about as effective as ordering eth tides to withdraw.

I feel stupid but I just recently learned about the situation in PEI (a neighbouring Canadian Province), and what ever they did seems to work, their gas prices have remained consistantly lower than NS.

Even with this new legislation gas prices will inevitably rise. I think the improvement will be in the information provided to the customer.

Knowing that gas prices are going to rise will allow patrons to fill up before it happens (ultimately leading to lineups at the pump), but its possible the patron will be able to have enough gas to last through the fluctionation (assuming it comes back down). At the very least it means that people can fill up again at the higher price just before the next increase.

But if the gas company knows that pending an increase everyone is going to fill up, and that on the day of and following the increase NOBODY will fill up, would you make the decision to rise prices?

I’m not sure the independent route is the way to go. Its true that each station would be able to buy at their percieved lowest price, but I don’t see that translating into lower pump costs. Independent companies would have to have higher prices to cover the general uncertainty of “going it alone.” The advantage of a chain allows one station to take a loss while another makes a gain.

Well you could have gas pump chains, they simply would be divored from the suppliers.

I don’t understand why gas prices are seen as something different from, say, beef prices. Why is that people seem to think they have a right to cheap gasoline? When prices rise beyond your liking or your budget, you cut back on consumption. Drive less, carpool more and above all, buy a car with better gas mileage.

Beef has not doubled in price in a span of just a few years. If it did people want changes there too. What this measure does is give gas buyers more accurate infomation. It’s the resulting compition that will bring prices down ar atleast hinder their increase. I’m planning on writing my elected officials in the state goverment and letting them know this is something I want in Michigan.

A valid arguement, but I know the government carefully controls the supply of milk so that prices stay level.

The tough situation with gas is that it is an ingrained part of our society, and although its not explicitly needed (like milk) there is still a base level of need.

The problem with fluctuating gas prices is that while it may vary 5 or 10cents per liter (or gallon) that translates into a \$5 or \$10 change per fill.

The best argument for controls is that the gas companies are varying the price A HEAD of the change in cost. In effect, they know what gas will cost for them in 6 months (or what ever it takes to go from well to pump). So they are constantly a head of the consumer who is completely at their whim. I see the proposed legislation as a means to level the playing field.

Personally I don’t care what the actual price is, and like you said when it goes up I buy less. What I mind is that it varies so frequently. I used to walk by a gas station on my way to school every day. And every day I would watch the price fluctuate 2 or 3 times by as much as 10cents.

Can you think of any other commodity in our daily lives that has a price fluctuation of \$10 throughout the day?

As a comparison, imagine if your phone/long distance prices fluctuated randomly through the day. Or your home electricity/gas.

First, that’s an extremely, extremely rare occurance. Second, you’d have to have a 100 gallon tank to translate into 5.00 per fill. Let's at least get the facts straight. I've seen fruit in stores varry by more than that per pound in a short period of time. If I buy a dozen apples that are suddenly .05 more expensive each, that’s pretty much the same as your scenario for gas.

If poor people need assistance they should be given assistance. Tinkering with the pricing mechanism of the market just makes no sense. By artificially supressing the price, you send the message: “No need to worry about overconsumption of this commodity.”

How is the price being artifically supressed? Gas companies are being required to disclose more infomation to the public but they’re still free to charge what ever they want as long as they give notice of their intentions.

Actually John, a move of 10% per liter is not uncommon in Ottawa at least. Typically over the course of 3-4 hours the price can move from \$0.69 to 0.76 per liter. For my Civic (~36l) a fill up can move from 24.84 to \$27.36. Crippling? No, but the fact that such changes can occur 2-3 times a week raises the question of why these past purchases of oil have such a dramatic movement today.

There could be negative effects from this posting law. For instance, I could imagine people lining up to fill up to avoid the pennies per/gal difference. People do strange things and rarely take into consideration the value of their time. If a station ran out of gas early due to a lot of people queuing up to save a few pennies, they might have to close for a couple of days until they could get another delivery, perhaps idling some workers in the meantime. Oil companies wouldn’t want to ship a load of gas early if the new gas cost them more to manufacture.

In California yesterday, I saw premium going for \$2.79/gal.

Here is a website you can search for the lowest prices in your area:

Of course there will be negative effects. And some of them will be totally unforseen. Many others are predictable. For instance, gas hoarding.

All these atttempts to meddle in the market to solve the ‘problem’ of prices fluctuating with supply and demand inevitably cause more disruptions and problems than if you just leave the market alone. But politicians are always trying to score points, so when something becomes a ‘problem’ they feel compelled to trot out government solutions. The unfortunate part is that sometimes their harebrained schemes make it into law, and we all pay the price for it.

I really don’t see gas prices as a supply and demand issue. I’m struggling to remember first year economics, but I see this as a situtation where increasing the price (at the pump) does not alter the demand at the pump.

I think that with this law gas hording will be enevitable, and so of course places will run out causing problems. I wonder if in response gas stations wil simply close for a day.

Now, I do see this as a good thing for competition. I can’t imagine a company wanting to risk posting an increase, exposing themselves to the potential that other stations might not follow suit (even though I’m pretty sure they all will).

Why wouldn’t that exact situation happen right now, without any changes to the law?