Oil Falls Below $97

My husband saw this on the news this morning. So I have to wonder why gas is still $3.99 here and not $2.99

 

Because 80% of the customers are willing to pay $3.99. Why should the retailer charge less? Maybe car dealers should charge less than people are willing to pay?

 

Because it's called price gouging, and it is illegal in Ky.

 

Bill O'Reily showed that crude went down 35% a barrel but gas has only dropped 7% at the pump.

 

If the past few months have taught us anything, it has to be that the price of gasoline is not governed strictly by the price of crude but by what speculators think the supply and the price will be at some undetermined point in the near future.

It's nuts.:BangHead:

 

Not to mention the fact that now it's getting difficult in some places to find gas stations that are even open to pump gas.

It's the 1970's all over again!

 

Remember that the gas at the pumps now was produced with crude that cost MORE than the present cost of a barrel of oil. That $97 oil won't make it to our pumps for months.

 

Yes, and O'Reilly got so nailed by an analyst on his show who pointed out to Bill that 18 months ago, gas was about $2.20/gal. and crude oil was about $50 a barrell. So when crude oil peaked close to $150 a few months ago, why weren't gas prices triple the amount up to $7.00/gal? Bill didn't have an answer, he just tried to shout down his opponent. The point is, there is more to making gasoline than just the price of oil. And if you expect gas prices to drop at the exact same rate as oil prices drop, then you need to explain why they didn't rise at the same rate that oil prices rose.

 

When oil went UP to $103.00 a barrel gas was $2.95 (national average)at the pump. when the price of oil came DOWN to $103.00 gas was $3.65 a gallon.(national average)

 

Then why does oil go up and immediatley within hours the pump price ahs gone up. Shouldn't it work both ways?

 

Not claiming to be an expert, but based on other business experience, I suggest the price at the pump may be determined by the greater of the cost of the gas currently in the tanks or the cost the owner expects to pay for the next delivery.

For example, if the owner expects to pay 3.25/gal for his next delivery but he paid 3.00/gal for what he has in his tank, his price will reflect the 3.25 plus associated fixed and variable costs (including normal profit, which is not much on gas). If he expects to pay 3.00/gal for his next delivery, but he paid 3.25/gal for the gas in his tanks, his price will still reflect the 3.25 plus associated fixed and variable costs (including normal profit).

Just one guy's thoughts.

 

According to the news, the government is investigating price gouging at the local stations and not looking at the companies that supply the gas to the stations.

 

Actually, it works more like this:

The wholesale price for gas changes each day. Station owners price their gas each day according to the current wholesale price, NOT according to what they actually paid for the gas they have in the ground.

Let's say the profit on a gallon of gas is 10 cents. If the wholesale price is 3.50, the cost at the pump would be 3.60.

It's possible that the station owner actually paid $3.60 per gallon when he got his last delivery, so he is technically not making a profit selling it for 3.60.

BUT, let's say he gets a gas delivery and the wholesale price for that day is $3.50 per gallon. Then, a few days later, the wholesale price has jumped to $3.70 per gallon. Now he's selling gas for $3.80 per gallon, and realizing a profit of 30 cents per gallon, because he paid $3.50.

If they didn't price it this way, and tried to always sell it for 10 cents per gallon more than they paid for it, here's what would happen:

Station "A" gets a gas delivery on Monday, when wholesale prices are $3.20 per gallon. Station "B" across the street gets a delivery on Thursday, when wholesale prices are $3.60 per gallon. Station "A" would be selling their gas for $3.30, while station "B" across the street would be at $3.70. You would see huge price differences all over town, depending upon when the station got their last delivery.

 

Way to go after the symptoms but leave the disease in place.

I thought the price at the pump was linked to the price of the barrel because you always see the two together on the news. They show you the price at the pump then say, "the barrel was up etc..."

So we know the guy at the station has a relatively fixed profit margin, let's say $00.25/gal. What set's the price per gallon at the refinery if it isn't the cost of the barrel?

 

Sorry I didn't read this post before I posted.

Again, how does the wholesaler set his price? If the barrel can vary $50 and the pump stays relatively the same, <scratches head>???

 

Thanks for the insight. I am trying to learn something new, so I have a couple of more questions....

If I were an independent convenience store owner, would I contact my wholesaler every day (or maybe eve a couple of times depending on the turmoil) to check prices and adjust mine accordingly? I would assume at any company owned gas stations this would happen automatically (providing the technology is available).

Would a station ever charge less than the wholesale price? The way you have described it above, that could happen. Probably not enough to hurt, but it would lower the overall profits for a period over time.

 

Exactlywhy should retal priced drop?

Customers have demonstrated that they are wiling to pay $4. Why should theprice rop below $4 unless profits drop because of declining sakes?

 

That's a good question. I don't know the answer. I work for a trucking company, and delivering gas is all we do. I do know that the loading racks (where we go to actually get the gas we deliver) play games BIG TIME with the prices. I don't really know if I should refer to these loading racks as the oil companies, or "wholesalers", but whoever they are, I've seen them cut off the gas supply numerous times when they anticipate the price will be going up the next day. In other words, we go to the Chevron terminal, for example, to get a load of gas for ABC Store, and there is no gas available. At 6:00 p.m. that night (when prices change), the wholesale price goes up 30 cents per gallon. The next day, we can get gas again. The terminal wasn't really out of gas the day before, they just shut it off so that they can make more on it the next day. I don't know WHO determines what the wholesale price will be. In all fairness, Chevron doesn't seem to play this game as much as Marathon does.

It's confusing. I've been working at my company for several years now, and I still don't really understand it. But, I do know what I've seen, and that is the oil companies/wholesalers playing supply & pricing games to maximize their profits....there's no doubt about that.

 

The wholesale price basically changes once per day, either at 6:00 p.m. or at midnight. Most of the suppliers change their prices at 6:00 p.m., and that's when they let their customers know what the next day's prices will be. A lot of people in the industry watch the stock market...I honestly don't know what they are looking for...but apparently there are indicators that let them know if the price should be going up or down that night. That's why we (the trucking company I work for) often get calls from customers asking us to get them a load before 6:00 p.m., or after 6:00 p.m., depending upon what they THINK the price is going to do that night.

Yes, a station does sometimes charge less than the wholesale price that they paid for it. For example, if they pay 3.50 per gallon on Monday, and then by Thursday the wholesale price has dropped to say, $3.20 per gallon, they would adjust their price and sell it for less than they actually paid for it. BUT, there would be other times when they would buy it on Monday for $3.20, and by Thursday the wholesale price has gone to $3.50, so they make some big-time profits on this gas. I've heard that it averages out over the course of the year that they usually profit 8 to 10 cents per gallon, but I'm not 100% sure that's correct.