I worked in the Oil and Gas industry for over 30 years...

[CC27]

CapnSteve (420 posts)

I worked in the Oil and Gas industry for over 30 years...

...and I was asked many, many times: "when the price of oil falls, why doesn't the price of gas fall as well?"

The answer is surprisingly simple: The price of a barrel of oil is based on speculation - will the future price of oil increase or decrease? It is commodity traders placing bets based on nebulous, often unreliable data. Like the effect of the 39 claims that the Straight of Hormuz with open, OPEC limiting production, or predictions of a harsh winter in Europe, etc.

The price of a gallon of gas is only based on "what the market will bear." Just like any other consumer product, businesses (in this case gas stations) charge as much as they can to maximize profit. They only back off the higher price when it decreases sales. You will see local gas stations compete for customers by lowering their prices a few cents here and there.

Oil companies raised gas prices using the excuse of Trump's war on Iran. Now, "what the market will bear" has been set well over $1.50 per gallon more that before. The price of gas may come down a bit, less than 50 cents a gallon, but the new normal has been set for the market.

https://www.democraticunderground.com/100221307225

Uh huh...

[DefiantSix]

...The price of a gallon of gas is only based on "what the market will bear."
[/snip]

Actually LPC n00b, the price of gas is based on the wholesale price the station or chain paid for the last tanker load. The wholesaler bases his price on what he's paying the refiner - on contracts usually bought about 3 months ago based on the crude oil price at that time.

[Ralph Wiggum]

CapnSteve (420 posts)

I worked in the Oil and Gas industry for over 30 years...

[SVPete]

Actually LPC n00b, the price of gas is based on the wholesale price the station or chain paid for the last tanker load. The wholesaler bases his price on what he's paying the refiner - on contracts usually bought about 3 months ago based on the crude oil price at that time.

  ! The oil industry, from wellhead to gas station uses FIFO - First In, First Out - accounting to set prices. That means there is a ripple of delays as the latest tanker - ship or truck - and pumped batch reaches each stage of refining and delivery to retail stations.

What CapnSteve calls "speculation" is actually commodity contracts based on experts' expectations/calculations of production volume and transportation costs (including safety). A source who speculates that they can get $0.10 or $0.20 per barrel more than other sources could find themselves stuck with a whole lot of oil they cannot sell.

Not that facts matter on DU.

[fatboy]

The law of supply and demand.

Once the oil starts filling the pipeline, given the pent-up supplies, the supply will be greater than demand and prices will reflect that.