How do gas prices go up so damn quickly in response to the price of oil?
As is spammed all over the news day, oil went up about 10% and everyone is shitting bricks.
I’m listening to the news this afternoon coming back from the post office, and they report that gas prices have already gone up 10-12 cents a gallon as a result and we’d see another 10-12 cents by Monday morning. They interviewed a station owner who says he received a fax from the retail wholesaler that prices were up effective immediately. :smack:
But that’s for oil to be taken on delivery in July. The oil that became the gas in the tanks at the stations today was paid for long ago. Even if the station ran out and needed a refill, all the oil at the refinery was purchased at a past historical price. I assume the spot market has also taken a hit, but how did the “cost” of the gas in the tanks arbitrarily go up? :rolleyes:
I think I already know the answer-- station owners/wholesalers/refiners are taking an opportunity to make a few bucks, but if there’s something I’m missing here I’d appreciate my ignorance being fought…
If your goal is to make money selling something, you will base your asking price not on what your current inventory cost, but rather on what you expect the next batch to cost. (It’s easy to show that any other approach - for example, basing your price on the cost of current inventory - will be an inferior strategy.)
There is a common misconception in economics that finished goods should reflect the actual cost of their raw materials. In fact, it reflects the intersection of supply and demand. If the cost of raw materials goes up, the cost of finished goods goes up immediately in anticipation of future costs and supply. Stock prices do the same thing. If a company announces that in six months, they expect to be purchased at a price higher than the current market price, the market price jumps up right away in anticipation of what will happen in the future.
Keep in mind that while the gas in the tank is already paid for, when gas prices go down below what they paid for it they have to reduce the sale price to an amount lower than what they paid for it to remain competitive. Therefore, the money they make now offsets their losses in the future. When (or if) the alleged bubble bursts they’ll be taking monster losses- imagine selling large volumes of something you paid $4 for at $3.
Of course, that assumes that the prices will come down, which is not likely in the immediate future. Ultimately, though, it usually balances out.
Again, you look at the cost of the next tank. If you can buy at $2.50/gal it makes excellent sense to sell for $3 - and that’s true whether the gas you now own cost you $1 or $5.
A narrow spread means the oil companies aren’t making much and don’t want to use their refining capacity to produce gasoline. They would rather make diesel or heating oil
Plus the jokes are easy.
Joe might watch the RBOB which gas delivered to New York ready to have ethanol mixed in.
Note that this is a screen for the “previous session” since we’re closed for the day. If you wish to follow it during a trading day just click on the current session.
As a rule of thumb you can figure about $.65 added to the RBOB is what you’re going to pay at the pump. Today closed at $3.5480. Yesterday was $3.3345.
Joe sees this coming at him and knows he has to get a little now just to ease along. Out of the $.65 he’s only getting a nickel. So he’s laying down $35,480 to fill a 10,000 gallon tank and making about $500. He’s more scared of this than you are.
Think about what happens when the price of oil goes down? Do you see folks furiously demanding that the price at the pump remain as high as possible so that the gas station can avoid taking a big loss?
I did not notice any local gas station owners drop their prices after market close any day this past week. I did notice the guy around the corner raise his prices 20 cents from what he had this morning.
So no, I don’t see anyone demanding the price remain higher, I see the gas station taking care of that all on their own.
Quite a few people in this thread found that the price did drop last week when the price of crude dropped to a “mere” $124.
It’s to do with the way we perceive the world. When prices go up, the common reaction is “bitch, bitch, bitch - let’s post a thread about it on the SDMB”. When prices go down, it’s a case “oh, that’s nice dear. What’s on TV tonight?” and no one posts about it.
Comparing gasoline and oil prices, I am able to find no real correlation between the daily cost of oil and the daily cost of gasoline, upwards or downwards. The cost of oil went up about 3% from May 12 to June 3 yet gasoline went up about 20% in that time.
I think Mondo explained it best.
If these are not equal comparisons please let me know.