Gas prices-Who sets them?

The price on the commodities market floats. It rises and falls based on what speculators are willing to buy and sell. That can vary wildly, and news stories can dramatically affect it. There have also been some well done articles on US retirement funds investing heavily in gas and oil commodities, driving the price up.

Regional and local distributors buy that gas, and then sell it to retailers at a mark up. They get to set the mark up, within whatever limits exist. Be those corporate limits, government limits (anti-gouging laws, anti-loss leader laws, etc), and their own morals and greed. They can also charge transportation and distribution fees.

Individual stations then sell that gasoline. If they are independent, they can set their own price. If they are corporate, their prices are set for them. This is not always as obvious as it seems either. They are constrained with the same anti-gouging and anti-loss leader laws and such as the distributors.

Enforcement of the anti-gouging and anti-loss leader laws is generally inconsistent and sporatic.

For example, here there was great angst at a major box-store being allowed to have gasoline pumps, because surely this would drive everyone out of business as they undercut the price. They did not, their prices were generally a nickle higher than the mega-chain gasoline station one block over. None the less, anti-box-store legislation was enacted, mandating box-store gasoline prices must be 15 cents higher than average in order to be "fair".

Another example, an infamous gas station nearby charges about $1.50-$2.00 higher than anyone else. He's done this for as long as I know of, and that goes back to the 1970's. None the less, he always has a line of people waiting to pay his absurdly high prices. No one ever complains, and no action has ever been taken against him.

jstand wrote:

z31maniac wrote: I've always wondered why the oil price for next month's contract, affects gas already in the ground...........and then how retailers milk the higher prices by bringing down the retail price more slowly than the wholesale cost. Even when I worked at QT, no idea. We just a call from the big dogs that said, "Change the price to "x.xx." Oh how I remember being 16 driving an '89 Escort (1998) and $5 gas would actually last me almost a week.

My understanding ( from a friend that owns a station) is that the margin for the station on a gallon of gas is only 5-10 cents on a gallon depending on how much competition they have. Having thousands of gallons of gas in underground tanks and how quickly they turn over that volume impacts how quickly they can respond to changes. Most stations need to use the money taken in from the current tank to buy the next so any increase on the cost of next delivery needs to be paid for from the sales of current delivery. Therefore they need to mark up the cheaper gas in the tank to be able to afford the more expensive gas for the next delivery. The slow drop is the reluctance to sell gas in their tank that was purchased at a higher cost for less than they paid. So they don't drop the price until they have purchase fuel at a lower price.

I'll second what jstand has offered as it was confirmed (to me) by a local Shell station owner/operator. This guy was paying out-of-pocket and up-front for his deliveries which occured every couple of weeks.

His was a small four pump, eight bay store and had major competition from a sixteen pump, 32 bay BP store right across the street. That higher volume BP store put the pressure on him to keep prices competitive but it still sometimes took a week before he afford to lower prices a penny or two to match the other guys. He said he making (on average) about 2-4 cents on every gallon he sold; there was no reason to distrust his statements.

He was always more dependent on sales within his convenience store as he gas pricing wasn't his bread and butter income. That store was in what seemed a great location but in and out access was often severely limited by traffic flow. Eventually, cash flow dried-up to the point where he couldn't front the cash payments for gas and a few weeks after his last delivery the store closed.

That was a few months ago and the place is still boarded-up.

I had a situation where one BP station was 20cents higher than the next, and they were 2 blocks apart....stayed that way for a week at least.

Otto Maddox wrote: Obama

why would you do that?

In reply to 4cylndrfury:

Hey, it's only "fair" after we heard Bush was to blame for eight years.

No Bush is still to blame. I hear it everyday.

One word OPEC. OK it isn't a word, but it is an organization dedicated to optimizing and setting oil prices. It is used as an economic weapon. So it could be called a WMD.

Sellers set prices. Consumers confirm them.

I always hear that "THEY" raised the price

Most of it's just supply and demand.

Both fluctuate in the short term in a fairly tight range. Both can change significantly over the long term. A lot of it is expected future supply vs expected future demand. If we were able to gradually cut our gasoline consumption 50% over 20 years, we'd see gas prices gradually fall over that time; some sudden drops, but some rises too as supply went offline.

I agree the main issue is the globalization of the oil/chemical markets. If the refineries don't get a price they like here in the US they will sell it to either the chinese or europeans. I'm fairly certain that gas prices are artificially lowered(opening up the strategic reserve) around Christmas to facilitate consumer confidence and increase retail activity. I think they said the US biggest export last year was oil and refined petrochemicals so there isn't a shortage of oil, but being a global market run by multinational companies there is no expectation of preferential price in the domestic market. Remember the invisible hand is always at work.

Another consideration is here in the US we have the refining capacity to produce chemicals and lubricants. Many large oil producers actually lack refining capacity and end up having to import finished petroleum products. This is why the price of diesel is higher than gasoline, diesel can be further refined into other chemicals while gasoline is a pretty much an end product.