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Why do gas prices go down?

Raizinman

Raizinman

Platinum Member
Gasoline is a necessity. The oil companies make more money the higher the price. People must pay their prices, there is no other choice. Lowering the price per gallon costs them millions of dollars for each penny. Why would they lower the price? Wouldn't the objective of the oil companies be to make as much money as possible? They should be pushing the price up and up and up, and never down. Doesn't make sense.
 
From what I understand it has everything to do with oil speculators. When people are buying, driving up the cost of oil (per barrel crude), the price of gas goes up. When the speculators sell, it drives the price of the oil down, and the price of gas goes down. I am sure there is a few other less consequential factors but the price of gas seems to respond parallel to the price of oil on the market.
 
homebrew2ny said:
From what I understand it has everything to do with oil speculators. When people are buying, driving up the cost of oil (per barrel crude), the price of gas goes up. When the speculators sell, it drives the price of the oil down, and the price of gas goes down. I am sure there is a few other less consequential factors but the price of gas seems to respond parallel to the price of oil on the market.
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When did this start happening? Could of swore there was a time where gas was cheapest on say monday and went up linearly for the week and dropped back down again, then gas was the most expensive in the morning and cheapest at night, now its all bonkers with these speculators.
 
Raizinman said:
Gasoline is a necessity. The oil companies make more money the higher the price. People must pay their prices, there is no other choice. Lowering the price per gallon costs them millions of dollars for each penny. Why would they lower the price? Wouldn't the objective of the oil companies be to make as much money as possible? They should be pushing the price up and up and up, and never down. Doesn't make sense.
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And then push us even faster and faster away from it? Of course not. High enough to give them tons of money but still low enough so we will continue driving. Not that hard to figure that out.
 
It also has to do with storage space. Oil companies do everything they can to influence the the supply statistics in their favor.

Supposedly tankers parked in international waters don't count against reserves so there are often hundreds waiting off of the US border waiting for the go ahead to unload.

But inevitably (especially lately) the time comes that all places to store oil are full and they have to give consumers an incentive to buy more.
 
homebrew2ny said:
From what I understand it has everything to do with oil speculators. When people are buying, driving up the cost of oil (per barrel crude), the price of gas goes up. When the speculators sell, it drives the price of the oil down, and the price of gas goes down. I am sure there is a few other less consequential factors but the price of gas seems to respond parallel to the price of oil on the market.
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It's really quite an interesting application of economics. The speculation is a big part of it. The price of gas is a function of global supply and demand, as well as local or regional distribution/consumption factors. Global crude is a commodity sold on exchanges just like pork bellies or wheat. The pricing is actually quite transparent as one can take the average local/regional price and using the crude price, back into the refinery and wholesaler price/margin realization model.

Having said that, the question of why the three gas stations on the corner all have about the same price up on the sign is an interesting one. Essentially, they're all in the same price model as above. When one raises its price a few pennies, the others follow and take a bit more profit (or lose a bit less). When one lowers the price, they know drivers will turn right or left to gas up for a few pennies difference, and the others follow suit.
 
They know people don't have a choice but they also know if they take it too far people might actually look at electric cars more seriously. So by playing around with the prices they get to screw people over but not make it 100% obvious. For example on long weekends the prices always skyrocket because they know everyone's going camping and will need gas for the sea doos, quads, boats etc. then a few days after the long weekend they'll come back down again.

They need to push the envelope while also not overdoing it.

There's also lot of other factors, like if someone gets a paper cut at an oil plant, or someone spills their drink in the lunch room or it starts to rain.
 
Because of competition within the market. The station buys gasoline, and can get it from Chevron, Exxon, etc, whomever drills the actual oil and refines it. If there is an excess of capacity wouldn't Chevron go to undercut Exxon to sell it to the station? Eh?

If all oil came from one company, then yes the OP would be right, but oil companies compete globally. Russian Gazprom, American Exxon, Chevron, British BP, yadda yadda. All compete.

Gasoline consumption has gone down from the higher prices in the USA but globally you really can't get enough oil.
 
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I saw a show on H2 about a guy in the Mafia that ran a couple gas stations in NY where he didn't report the taxes and pocketed every penny. He made on average 2 Mil a week.
 
homebrew2ny said:
From what I understand it has everything to do with oil speculators. When people are buying, driving up the cost of oil (per barrel crude), the price of gas goes up. When the speculators sell, it drives the price of the oil down, and the price of gas goes down. I am sure there is a few other less consequential factors but the price of gas seems to respond parallel to the price of oil on the market.
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/thread
 
Raizinman said:
Gasoline is a necessity. The oil companies make more money the higher the price. People must pay their prices, there is no other choice. Lowering the price per gallon costs them millions of dollars for each penny. Why would they lower the price? Wouldn't the objective of the oil companies be to make as much money as possible? They should be pushing the price up and up and up, and never down. Doesn't make sense.
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Just read your sig. You are not from Chicago apparently.

Going down, LOL.
 
John Connor said:
I saw a show on H2 about a guy in the Mafia that ran a couple gas stations in NY where he didn't report the taxes and pocketed every penny. He made on average 2 Mil a week.
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There was a scheme run by the mob in the greater NY area in the early 90's where they took used motor oil and mixed it with gas, 5-7% was used motor oil, the mob found out that by the early '90's the cars computer's had become "smart" enough to compensate for the mixture and most people would never know the difference, IIRC it got busted when some cat. converters got clogged very early in life and they took samples from peoples tanks and figured out what had happened..
 
these companies make so much off gas they don't need to worry about a few million. they're raking in billions in profit and every year it gets higher and higher.
 
John Connor said:
Simple answer: Greedy bull shit.
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yawn. get a better answer.

OP, if your logic was sound, then the price could go infinitely higher without any impact on demand. But that, of course, is not how supply/demand works. Oil companies and the speculators are not going to keep prices artificially high if it impedes or reduces demand. They will actually start to lose money.
 
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