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Thread: Why are prices at the pump not going down when the price of oil is?

  1. #1

    Why are prices at the pump not going down when the price of oil is?

    Isn't the petroleum market supposed to be an example of the free market system. It's incredible to me that when the price of a barrel of oil was going up the price at the pump immediately reflected that but the converse is not true.

    I saw a report on the news tonight of a representative of the petroleum industry explaining why prices at the pump are not going down now by saying that the stations had to pay more for the gas when it was purchased so their inventories reflected a higher purchase price then the currently traded price.

    Well wasn't that also true when prices were going up. After Katrina the prices immediately went up at the pump even though the stations paid much less for the gas that was then being pumped at that time.

    Now in a free market business model there should be some wise entrepreneur coming in and offering cheap gas and that station should be flooded with customers and forcing the other stations to lower their prices. Why isn't that happening? I know eventually it will but in a proper market it should have happened by now.

    Could it possibly be that there is collusion involved and this is not a true free market? To me this negates all those jumping in saying that the oil subsidies are necessary to keep prices down and if they are removed the consumers will pay. This industry does not work by free market forces. There are cartels and associations that control prices and the companies try to maximize prices by socking it to the consumers. Now I realize that is for the benefit of the shareholders and that's what a business functions for but to me that negates the reason to give them any special tax breaks or subsidies.
    Last edited by Queens Jet Fan; 01-19-2007 at 12:53 AM.

  2. #2
    [QUOTE=Queens Jet Fan]Isn't the petroleum market supposed to be an example of the free market system. It's incredible to me that when the price of a barrel of oil was going up the price at the pump immediately reflected that but the converse is not true.[/QUOTE]

    It's not that complex.

    When the Oil Companies know crude prices will rise, or demand will outstrip supply (as both occured post-Katrina) they will raise prices to their stations ahead of time to ensure steady and even revenue flow and to cover new costs down the road. Stations then turn around and do the same thing to cover their new higher cost. Result: Immediately Higher Prices.

    When the price of Crude goes down, the individual operators (who already paid the higher price to get their Gasoline) have no need to lower prices on this factor alone, as they already paid a high price, and must recoup that cost back. Result: Maintained Higher PRices until a substantial amount of time has passes with prices of crude (hence prices Stations Pay) staying low.

    This is not rocket science here. It's Business 101.

  3. #3
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    because big oil owns us

  4. #4
    [QUOTE=Renaissance10]because big oil owns us[/QUOTE]

    Yep, it's all a Big Conspiracy. And only YOU have figured it all out.

    Here's your cookie. :cookie:

    :rolleyes:

    Hate Oil? Great, get off you lazy ass and invent us something else to use for fuel. Till then.... :zzz:

  5. #5
    [QUOTE=Warfish]It's not that complex.

    When the Oil Companies know crude prices will rise, or demand will outstrip supply (as both occured post-Katrina) they will raise prices to their stations ahead of time to ensure steady and even revenue flow and to cover new costs down the road. Stations then turn around and do the same thing to cover their new higher cost. Result: Immediately Higher Prices.

    When the price of Crude goes down, the individual operators (who already paid the higher price to get their Gasoline) have no need to lower prices on this factor alone, as they already paid a high price, and must recoup that cost back. Result: Maintained Higher PRices until a substantial amount of time has passes with prices of crude (hence prices Stations Pay) staying low.

    This is not rocket science here. It's Business 101.[/QUOTE]
    I'm sorry I don't buy that. A lot of gas stations are independents. With prices of crude and demand (with the warm winter in the northeast) down you would think they would be able to find some refiners that would try and cut their prices to move their inventory which is losing money as the price of crude drops.

    In the free market model this is the way it should work but it is not. Yes this is Business 101 in an industry controlled by giants where there is collusion in keeping prices high.

  6. #6
    [QUOTE=Queens Jet Fan]I'm sorry I don't buy that. A lot of gas stations are independents. With [B]prices of crude and demand [/B] (with the warm winter in the northeast) [B]down [/B] you would think they would [B]be able to find some refiners[/B] that would try and cut their prices to move their inventory which is losing money as the price of crude drops.

    In the free market model this is the way it should work but it is not. Yes this is Business 101 in an industry controlled by giants where there is collusion in keeping prices high.[/QUOTE]
    So, decreased demand and lower prices should spur production?

    I think you're in the wrong classroom, try Remedial Econ. Go sit next to Ren10, he's the skinny kid carving a swastika into the desk.

  7. #7
    [QUOTE=Queens Jet Fan]I'm sorry I don't buy that. A lot of gas stations are independents. With prices of crude and demand (with the warm winter in the northeast) down you would think they would be able to find some refiners that would try and cut their prices to move their inventory which is losing money as the price of crude drops.

    In the free market model this is the way it should work but it is not. Yes this is Business 101 in an industry controlled by giants where there is collusion in keeping prices high.[/QUOTE]

    Since when does cost have anything to do with a free market?

    It may very well be that the industry, operating independently is willing to move less product for a higher margin. When demand grew and prices went up the Oil companies were able to add capacity to fill demand at the higher price. Clearly they made a ton of money but the operating margin never went up significantly. If you are going to maintain you operations which was forced to grow when demand was rising, don't you have to sell less product at a higher margin when prices are failing in order to maintain that operation? If you don't or can't at some point won't you be forced to reduce you operations to maintain operating margin? If we do see a big decrease in demand and a downward spike in prices I would suspect thats exactly what will happen.

    The reality is it costs more to get oil out of the tar sands in Canada or from oil shale in the US than it does to get it from repressive regimes like Venezuela, SA, Iran, etc. I don't understand the liberal crowd who is pro alternate fuels and anti war looking to blame Exxon for high prices when the US should be putting tariffs on oil that's coming from the Cartel and promoting high enough prices to spur alternate production and fuels along with forced conservation.
    Last edited by Winstonbiggs; 01-19-2007 at 08:50 AM.

  8. #8
    [QUOTE=Queens Jet Fan]I'm sorry I don't buy that.[/QUOTE]

    And that is your choice. But buy it or not, it's reality.

    Enjioy riding your bike to work.

  9. #9
    [QUOTE=sackdance]So, decreased demand and lower prices should spur production?

    [/QUOTE]
    Listen I obviously don't need any lessons from you here. I was talking of product from the refiners who bought their oil a while ago and whose inventory is losing value every day. They have to move that oil and if you can't understand that then you need to go back for some remedial help.

  10. #10
    The price of gas in Mn. has gone down about 20 cents a gallon in the last month.

  11. #11
    [QUOTE=Warfish]And that is your choice. But buy it or not, it's reality.

    Enjioy riding your bike to work.[/QUOTE]
    Well what spurred me to start that thread was a report on NBC nightly news last night about this issue. Your opinion of why the price has come down is exactly that. Just your opinion.

    The experts they interviewed said that the price has not come down basically because they can get away with it. No company has broken ranks yet to force them to but eventually it will happen and the price will drop dramatically.

    This is the same that happened when prices were going up. The gas in their tanks were bought at lower prices but since everybody raised prices dramatically the stations all followed suit because they were able to that without losing any business.

    It's all a matter of what your competition is doing and if they all act in concert the consumer has no choice.

    My question that started this thread and still nobody has answered is that why just doesn't some independent service station lower prices dramatically to reflect the new price they are paying for supply. You would think they would be inundated with business that that would be a profitable decision. Why hasn't that happened?

  12. #12
    [QUOTE=Queens Jet Fan]Well what spurred me to start that thread was a report on NBC nightly news last night about this issue. Your opinion of why the price has come down is exactly that. Just your opinion.

    The experts they interviewed said that the price has not come down basically because they can get away with it. No company has broken ranks yet to force them to but eventually it will happen and the price will drop dramatically.

    This is the same that happened when prices were going up. The gas in their tanks were bought at lower prices but since everybody raised prices dramatically the stations all followed suit because they were able to that without losing any business.

    It's all a matter of what your competition is doing and if they all act in concert the consumer has no choice.

    My question that started this thread and still nobody has answered is that why just doesn't some independent service station lower prices dramatically to reflect the new price they are paying for supply. You would think they would be inundated with business that that would be a profitable decision. Why hasn't that happened?[/QUOTE]

    So, boiled down, you beieve there is yet ANOTHER right-wing conspiracy afoot. It's not enough to steal elections, war profit and destroy our own buildings (all commonly held leftist views) but now the right is also helping Big Oil fleece the people via an unlawful cartel monopoly with no oversight. Oh right, the War wasn't just for profiteering, it was also to help Big Oil. No blood for Oil! No blood for Oil!

    Wow, with all these conspiracies floating around, it must be hard to keep track.....oh, right, I forgot, it's all the Evil Mastermind (yet stupid ignorant fool) G.W. Bush. He's so good, and yet so stupid, he should be a Bond Bad Guy, eh?

    As I said, enjoy riding your bike to work. You DO ride your bike to work, don't you? After all, you're not yet another leftist hypocrite who lambastes Gasoline producers as evil, environmental destorying fiends, and then turns around and drives ther Hummer H1 to work every day, are you?

  13. #13
    [QUOTE=Queens Jet Fan]Listen I obviously don't need any lessons from you here. I was talking of product from the refiners who bought their oil a while ago and whose inventory is losing value every day. They have to move that oil and if you can't understand that then you need to go back for some remedial help.[/QUOTE]
    Simply put, your solution to lower prices and decreased demand is[B] more refining[/B], to move more end product where demand has declined. These are the kinds of places a leftist argues himself into, the by-product of what happens when you make it up as you go along in self-justification.

    [SIZE=3]3 + 3 = 8
    [/SIZE]

  14. #14
    [QUOTE=sackdance]Simply put, your solution to lower prices and decreased demand is[B] more refining[/B].

    [SIZE=3]3 + 3 = 8
    [/SIZE][/QUOTE]
    Geez it is very hard for you to get a simple point. Here is the scenario as I see it. Demand has slackened. Refineries were running at full capacity to produce while crude was high and demand was high. Now how do they get rid of their product? They can't just afford to let it sit. They have to lower prices. Gas stations are paying less for what they are selling. Why shouldn't the consumer then pay less? We are not though. Why?

    Can you grasp that?

  15. #15
    [QUOTE=Queens Jet Fan]Geez it is very hard for you to get a simple point. Here is the scenario as I see it. Demand has slackened. Refineries were running at full capacity to produce while crude was high and demand was high. Now how do they get rid of their product? They can't just afford to let it sit. They have to lower prices. Gas stations are paying less for what they are selling. Why shouldn't the consumer then pay less? We are not though. Why?

    Can you grasp that?[/QUOTE]


    They are paying less it's just not going down at the rate you think it should. Prices have bounced around all over the place on the way down. Cartel members have been threatening to cut production. In spite of that prices are coming down, there are factors at work that may be keeping it from coming down at the most efficient rate that have nothing to do with Oil company collusion but everything to do with an unstable commodity that is in the hands of a Cartel that the oil companies don't control.

  16. #16
    there is lowered demand (or increased supply) for heating oil due to warm weather

    there is no lowering of demand (or increased supply) for gasoline, people drive to work every day

    supply & demand are very much operating as normal.

  17. #17
    [QUOTE=Warfish]So, boiled down, you beieve there is yet ANOTHER right-wing conspiracy afoot. It's not enough to steal elections, war profit and destroy our own buildings (all commonly held leftist views) but now the right is also helping Big Oil fleece the people via an unlawful cartel monopoly with no oversight. Oh right, the War wasn't just for profiteering, it was also to help Big Oil. No blood for Oil! No blood for Oil!

    Wow, with all these conspiracies floating around, it must be hard to keep track.....oh, right, I forgot, it's all the Evil Mastermind (yet stupid ignorant fool) G.W. Bush. He's so good, and yet so stupid, he should be a Bond Bad Guy, eh?

    As I said, enjoy riding your bike to work. You DO ride your bike to work, don't you? After all, you're not yet another leftist hypocrite who lambastes Gasoline producers as evil, environmental destorying fiends, and then turns around and drives ther Hummer H1 to work every day, are you?[/QUOTE]
    Fish this post demeans you. I thought you were not a knee jerk right winger but you proved that thinking wrong. I was just asking a very simple question about why gas prices are not coming down at the pump and you spit out right wing propaganda crap. I did not expect this of you. I never spoke of the oil companies like you said I do. I even said they have the responsibility to their shareholders to maximize profits. Don't put words into my mouth.

  18. #18
    [QUOTE=Queens Jet Fan]Geez it is very hard for you to get a simple point. Here is the scenario as I see it. Demand has slackened. Refineries were running at full capacity to produce while crude was high and demand was high. Now how do they get rid of their product? They can't just afford to let it sit. They have to lower prices. Gas stations are paying less for what they are selling. Why shouldn't the consumer then pay less? We are not though. Why?

    Can you grasp that?[/QUOTE]
    I'm still trying to grasp this: [I]"you would think they would be able to find some refiners that would try and cut their prices to move their inventory which is losing money as the price of crude drops."[/I]

    Supply and demand, it's a simple and nearly perfect relationship - until the insertion of a political objective. Then we suspend its basic tenets to allow the machinations of Big Oil's Bush-blessed plotting.

  19. #19
    [QUOTE=Queens Jet Fan]I thought you were not a knee jerk right winger but you proved that thinking wrong.

    Don't put words into my mouth.[/QUOTE]

    Lol, I see right through your conspiracy talk, and now I am a "Knee-Jerk Right Winger". Lawl, typical. Someone blows you out of the water, so you resort to name calling and pigeonholing. Sorry Queeny, I am no knee-jerk anything, and I am DEFINITELY not a right-winger (ask any of our religios friends here on the board how right-wing conservative I am, lawl).

    You, throughout this discussion, have implied there is price fixing going on, and that the previous congresses allowed and condoned it, both of which are illegal.

    No one is "putting words in your mouth". You're post is yours, and my post is mine. Last I checked, my post didn't have "Queeny" written in it anywhere. If you don't like my evaluation of what you're saying, feel free to correct me in your own posts. But I will not stop evaluating the things other say in any form.

  20. #20
    [QUOTE=sackdance]I'm still trying to grasp this: [I]"you would think they would be able to find some refiners that would try and cut their prices to move their inventory which is losing money as the price of crude drops."[/I]

    Supply and demand, it's a simple and nearly perfect relationship - until the insertion of a political objective. Then we suspend its basic tenets to allow the machinations of Big Oil's Bush-blessed plotting.[/QUOTE]
    There is no insertion of a political objective here. You are inserting it not me. I am just posing a business question which people here want to turn into a political question.

    In pure supply and demand models the price should be dropping now at the pump and it's not.

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