Why do prices at the pump rise the minute crude does...but then take weeks to come down when crude drops? (wholesale, free market)

[neil0311]

Now I'm a free trader...Reagan Republican...all for the free market. I don't have any problem with oil companies making profits if the free market price goes up.

My question though is simple and has probably been asked many times before, but as we see oil slip back under $130/barrel, I have to ask it again. Why does the price at the pump seem to rise the very next hour after the price of crude rises, but when crude comes back down, it takes weeks to see any change at the pump?

We all know that it takes a while for inventory to make its way from the ground, to a tanker, to a refinery, and then finally to the pump. So why do we tolerate and how can it be justified when prices at the pump jump immediately upon news of rises in crude costs and rising futures? Why does this same logic never hold true in reverse. It's been this way since I can remember in the 1970s, and no one ever seems to address it.

[Mathguy]

I suspect this is a major part of it.

Availability heuristic - Wikipedia, the free encyclopedia

I notice when gas goes up a lot fast but I don't pay as much attention when it goes down. We also notice when a ref makes a bad call but not so much when they make a good call or a string of correct calls. Bad news sticks out in our minds.

[gardener34]

Somehow I am not buying that. We all know it is because the gas stations want to make as much $$ as possible and do it as long as they can get away with it.

[neil0311]

Originally Posted by gardener34

Somehow I am not buying that. We all know it is because the gas stations want to make as much $$ as possible and do it as long as they can get away with it.

Well that's the implication, but I wanted to see if anyone can provide another side that makes sense. So gas stations owners are ripping us off?

Sorry, I don't buy the "you notice it more..." theory. The fact remains that when oil spiked in the $140's a few weeks ago, the prices began rising hours later. Now that it's dropped nearly $20, where's the corresponding eagerness to drop prices at the pump?

I get that gas currently in inventory on hand costs more so pump prices take time to lower based on FIFO...what I don't get is how the cost of inventory magically jumps (and prices at the pump jump) in an hour when the price of crude goes up. Please don't insult my intelligence by telling me I'm imagining things.

[texdav]

I know that when crude goes up that the gas in a sations tanks is now roth more because it will cost more to replace the gas in the tank.Would you sell somethnig for a lower price when it is going to cost you more to replace/ I thnik that with the prices lowering it is really hard for them to take a chance on the price being lower when they replace the gas in the tank also. That means that it takes a day or two to go down.I tyhnnk it has more to do with how much they payed for the gas actually i the tank ;so when they pay less it goes down but not has quickly.Selling gas can be a tough business with the margins they make.

[neil0311]

Originally Posted by texdav

I know that when crude goes up that the gas in a sations tanks is now roth more because it will cost more to replace the gas in the tank.Would you sell somethnig for a lower price when it is going to cost you more to replace/ I thnik that with the prices lowering it is really hard for them to take a chance on the price being lower when they replace the gas in the tank also. That means that it takes a day or two to go down.I tyhnnk it has more to do with how much they payed for the gas actually i the tank ;so when they pay less it goes down but not has quickly.Selling gas can be a tough business with the margins they make.

As I said in my previous post, I understand inventory on hand costing more. The difference is when they adjust their price not based on COGS but on speculation of future inventory cost.

If I own a gallon of gas that cost me $1.50 and I can sell it to you (net of taxes) at $2.00, then why would I raise my price if the wholesale price rose to $2.00? The gallon I own cost me $1.50, not $2.00. When I buy new inventory at $2.00, then I would raise my price.

[sterlinggirl]

Everyone complains about this with gas stations, but we do the same thing with our houses.

[Bostonredsock5]

SOme one said on CNN that it would take oil to drop to about 110-120 a barrel for pump prices to hit 3.50

[AaronK]

Hmm, I won't be satisfied until it hits $2.50.

[Waterboy526]

Originally Posted by sterlinggirl

Everyone complains about this with gas stations, but we do the same thing with our houses.

The difference is no one has to buy your house, because even if they need/want a house really bad someone else will offer them a better deal.

However, the majority of Americans depend on fuel to get to and from work everyday and without it might not have a shelter to live in or food on the table.