[Chongo]

With crude dropping to $38/bbl and gas prices up over 60¢ in the past few weeks, who get the blame for the jump in gas prices? Someone has to responsible for the rise in prices. Congress needs to hold hearings and make "Big Oil" explain why gas prices are rising while crude oil prices are dropping.

I know...

[nonhuman]

The price of gasoline is not directly proportional to the price of crude oil. There are a large number of variables involved including which supplier of crude the gasoline refiners are using, the cost to actually refine the crude into gasoline, and the current market for other materials that also are made from oil (such as asphalt).

[Atheist]

Originally Posted by nonhuman 

The price of gasoline is not directly proportional to the price of crude oil. There are a large number of variables involved including which supplier of crude the gasoline refiners are using, the cost to actually refine the crude into gasoline, and the current market for other materials that also are made from oil (such as asphalt).

The only problem with that argument is that the second crude prices go up, ALL oil companies immediately increase the price of fuel. Unfortunately when the price of crude goes down, they don't immediately decrease the price of fuel.

[nonhuman]

Originally Posted by Atheist 

The only problem with that argument is that the second crude prices go up, ALL oil companies immediately increase the price of fuel. Unfortunately when the price of crude goes down, they don't immediately decrease the price of fuel.

That makes perfect sense given what I said. The price of crude may only be one factor in the price of gasoline, but it is still a factor. If crude prices go up, then necessarily gas prices go up. However there are other things that can also cause gas prices to go up even if crude prices don't, and even in crude prices go down. The market is far more complex than 'drill for oil, turn oil into gas, put gas in car'. Oil is an integral part of nearly every product we use from gasoline to green beans, and not just because it's used in the transport of them. Gasoline is actually one of the less profitable uses for oil, which is part of the reason it's price is so volatile: refiners can make more money refining oil into asphalt than into gasoline so they're going to prioritize asphalt.

Additionally the nature of commodities and futures is such that the current price of oil may very well not be the price that refiners are paying for it. As with the airlines they might (and I don't know if this is the case, I'm merely speculating) be signing contracts to buy x gallons of oil for x dollars rather than paying market prices. This would further disconnect the price of gasoline from the price of oil.

[Atheist]

Originally Posted by nonhuman 

This would further disconnect the price of gasoline from the price of oil.

Which fully supports my argument! Increase in crude oil price doesn't necessarily have to be reflected in an immediate increase in the price of gasoline. However that rarely seems to happen in the real world.

[Dork.]

It's all math. Crude oil prices are only a part of the overall price we pay at the pump, which include refinery costs, distribution costs, point of sale costs, taxes, etc.

Some of those costs are fixed (like infrastructure costs), some are a fixed percentage of the sale price (like taxes in some states), and some are variable. Crude oil is variable. When variable costs are high, they constitute a higher percentage of the overall cost vs. when those same variable costs are lower.

In other words, crude oil has more influence over the price at the pump when the crude oil price is historically high. When it is historically low, it has less influence, and fixed costs have more influence.

I think I've figured out the problem! Math must have a liberal bias!

[Atheist]

Originally Posted by Dork. 

In other words, crude oil has more influence over the price at the pump when the crude oil price is historically high. When it is historically low, it has less influence, and fixed costs have more influence.

I'm not sure I buy that argument. I think it's simple market economics. When crude oil goes up, gasoline prices go up. That makes sense. But when the price of crude goes down, there is no incentive for the retailers to lower the price of gasoline. Eventually gas stations will start dropping the prices to bring in business, which of course will then cause others to follow suit. But I would argue it happens more slowly than the price increases.

Another observation. Why are gasoline prices always higher in spring and summer? Demand. Not that the cost to produce it is higher. It's just that they can charge more.

[Dork.]

Originally Posted by Atheist 

I'm not sure I buy that argument. I think it's simple market economics. When crude oil goes up, gasoline prices go up. That makes sense. But when the price of crude goes down, there is no incentive for the retailers to lower the price of gasoline. Eventually gas stations will start dropping the prices to bring in business, which of course will then cause others to follow suit. But I would argue it happens more slowly than the price increases.

Another observation. Why are gasoline prices always higher in spring and summer? Demand. Not that the cost to produce it is higher. It's just that they can charge more.

I agree with both your points 100%. And I don't think they contradict my point. There are lots of things that affect the price of gas at the pump.

[Chongo]

Just so it's clear, even with crude prices dropping, this market forces at work?

[ghporter]

There are a number of factors going on here. For example, gas prices have been going down here in San Antonio after a short-term blip up two weeks ago. Premium is generally hovering around $2 (away from freeway and "damn, we're just so good you should love to pay more" stations). But we have something like FIVE major petroleum companies headquartered here and a lot of refining capacity nearby. Prices in Houston are interestingly somewhat higher than here, but for great prices, go to Corpus Christi and buy premium for less than $1.80.

The point is that refining capacity and distance from that capacity to your area have a LOT to do with how much a local station charges, because it affects what they pay. There are also factors like how far in advance the station/chain pays for its gas, with longer term contracts providing less dramatic but sometimes paradoxically "out of sync with crude" price changes.

[Dork.]

Originally Posted by Chongo 

Just so it's clear, even with crude prices dropping, this market forces at work?

Not sure how quite to parse this statement, I think there are a few words missing. But let me explain my point a bit further, in reference to the OP:

Math says that crude oil has more influence over the price of gas at the pump when crude oil prices are higher. I don't speculate (hah!) as to why crude oil prices may be high or low at any given point. But back when crude oil prices were so historically high that it had a larger influence on the price at the pump it seemed reasonable IMHO for Congress to look into it and make sure there were no shenanigans in the crude oil market going on.
Now that crude oil prices are back to historical norms, there is little incentive for Congress to look into the crude oil market, because crude oil no longer has a disproportionate effect on pump prices.

[Wiskedjak]

Originally Posted by Atheist 

The only problem with that argument is that the second crude prices go up, ALL oil companies immediately increase the price of fuel. Unfortunately when the price of crude goes down, they don't immediately decrease the price of fuel.

The price of gasoline is not directly proportional to the price of crude oil when the price of crude oil is going down, but it *is* directly proportional when the price of crude oil is going *up*. An exceptional case of double-think if I ever saw one.

[nonhuman]

Originally Posted by Wiskedjak 

The price of gasoline is not directly proportional to the price of crude oil when the price of crude oil is going down, but it *is* directly proportional when the price of crude oil is going *up*. An exceptional case of double-think if I ever saw one.

I'm not sure that anyone was saying that the price of gasoline is ever directly proportional to the price of crude oil. I, for one, certainly was not.

What I've been saying is that the price of crude oil is a factor in the price of gasoline. It is obviously the case that crude oil is necessary to make gasoline. Therefore if the price of crude oil goes up, the costs involved in making gasoline go up. The converse is also true. However, there are other factors involved as well. If the price of crude oil goes down, but demand for gasoline goes up, the price of gasoline will not necessarily go down along with crude oil and may very well go up.

It should be entirely clear that the price of gasoline is not directly proportion to the price of crude oil by simply taking into consideration that two years ago diesel fuel in the US was cheaper than gasoline, but now it is more expensive. This would make no sense whatsoever if it were the case that the price of gasoline and diesel were directly proportional to the price of crude. There are other factors involved that complicate the picture and mean that you can't simply extrapolate the price of gasoline from the price of crude.

[Wiskedjak]

Originally Posted by nonhuman 

I'm not sure that anyone was saying that the price of gasoline is ever directly proportional to the price of crude oil. I, for one, certainly was not.

I'm not saying that anyone here thinks that, but it's pretty clear that the oil companies think that the rising price of crude is directly proportional to the price of gasoline.

Oil goes up, gas goes up.
Oil goes down, gas stays the same or doesn't go down proportionally to it's increase with oil.

[Chongo]

I thought it was the fault of the occupant of the Oval Office. That was the mantra for the last few years.

[nonhuman]

Originally Posted by Wiskedjak 

I'm not saying that anyone here thinks that, but it's pretty clear that the oil companies think that the rising price of crude is directly proportional to the price of gasoline.

Oil goes up, gas goes up.
Oil goes down, gas stays the same or doesn't go down proportionally to it's increase with oil.

I'm pretty sure that the oil companies know exactly why gas costs what it costs...

But why should it come down? The appropriate price for any product on the market is the most that can be charged while still being able to sell your full inventory. To charge any less than that causes shortages where demand overtakes supply leading to price spikes while the market corrects itself. If enough people are willing to pay $5/gallon, then the price should be $5/gallon. It doesn't matter that this might price it ouside the acceptable price band for some consumers. The job of the market is not to make sure that everyone gets what they want, but to most effeciently facilitate the exchange of valuable goods.

The only thing that should bring price down is if supply exceeds demand. The supply of gasoline is but a fraction of the supply of crude oil, and is dependent on many other things as well such as refining capacity, transportation capacity, and trade agreements. Additionally, keep in mind that not all gasoline is the same. There are different grades, different formulas, and different additives. All these things contribute to the complexity of gasoline pricing.

But rest assured, that it is in no one's interest for gasoline to be overpriced. If gasoline were overpriced, the oil companies wouldn't be able to sell their inventory leading necessarily to a reduction in production, leading to layoffs and plant closures, leading to massive economic damage for everyone.

Just because you may not like the price of gasoline being as high as it is, doesn't mean it's a problem. It just means that gas is worth less to you than it is to other people. Markets are collaborative.

[OreoCookie]

Originally Posted by Chongo 

I thought it was the fault of the occupant of the Oval Office. That was the mantra for the last few years.

<rimshot>… and the oil price has fallen since he's out of office. What's your point again? </rimshot>
Please don't reply, unless you've got a little humor