greybeard
Well-known member
Oil companies have a margin to work within and that's it--the federal guys watch that margin to make sure no one is price gouging to the wholesalers, which is hard to do since gasoline is a traded commodity, and the daily price is public knowledge.tom4018":tmzoe11x said:I know there has to be a balance but high fuel price negatively affect the economy in my opinion. How did they make money years ago when crude was cheap? I know expenses have went up but I think the oil companies have been sticking it to the public, prices jump at the instant of bad news but fall very slowly. Crude falls and it takes a week or longer for prices to fall at the pump, crude goes up and they can't change the sign quick enough. Just one of my pet peeves as oil companies try to control the market.Caustic Burno":tmzoe11x said:tom4018":tmzoe11x said:Well it didn't take long for it to push gas prices up, 32 cents jump at the pump today.[/quote
Soon as crude get s up over 60 bucks a barrel again the companies will want to start talking.
They have no desire to process crude at today's prices.
Oil companies don't have influence on how much your retailer charges for gasoline or diesel--the wholesaler does. The retailer does not charge you and I according to how much he paid for the fuel in his bulk tank--he charges according to how much it will cost him to replace that fuel, and that value changes every day. Crude oil is a market commodity just like wheat and corn, but refined fuels like gasoline, heating oil, and diesel are also traded on the commodity market, and the price at the end of each trading day results in the wholesaler getting what is known as "rack price". That rack price is different from one area of the country to the other. The wholesaler gets this information every day sometime around 5pm eastern time, then notifies all the retailers he supplies so they will know whether to raise their price or not. Why? A retailer can sell thousands of gallons in a single day and if he does so at a price lower than what it costs to replace that volume, he's screwed and will likely have to run debit for the next load. If rack price drops, the wholesaler also notifies the retailer, but it is solely up to the retailer whther he drops his price accordingly. It's to his advantage to keep his price the same for as long as the rack price is dropping, which is why it seems like gas is quick to go up, but slow to go down.
So don't blame "the oil companies". Blame the market, or, the wholesaler if you must but when crude and the rack price of gasoline drop but retail cost doesn't--blame your retailer. He's pocketing the difference between what lower rack price is and what he's charging you (plus his own usual profit margin of course)Complicating a retailer's ability to set competitive prices as wholesale prices move is the challenge
of maintaining sufficient operating capital to cover the cost of the product that will replace the
inventory being sold.
A gasoline retailer typically seeks to establish a retail price based on the cost of replacing the
gasoline currently at the retail location – not the cost of that product itself. Basing prices on
"replacement costs" is especially critical when wholesale prices fluctuate frequently. A retailer must
generate sufficient cash from its current retail sales to purchase its next delivery of gasoline;
otherwise, the retailer would be constantly using debt to finance wholesale gasoline purchases.
This was a significant problem during the first half of 2008, as retailers exhausted their credit lines
to pay for more expensive fuel deliveries during the run-up to $4.00-plus gasoline. Many were
forced to close their stores because they could not generate sufficient revenues from fuel sales to
purchase the next delivery. This was particularly true with one-store operators. As a result, for only
the third time in the past 15 years, the number of convenience stores selling gasoline decreased in
2008.
With pricing influenced by replacement costs, there can be consumer misperceptions when gasoline
prices rise, as some consumers observe prices changing at a retail location even though the station
did not receive a new shipment of gasoline. However, the store may be responding to a notice from
its supplier that explains how much the next shipment will cost. But even these decisions to respond
to anticipated changes in wholesale costs are strongly influenced by competitive pressures and,
often, a retailer is unable to adjust retail prices to match the change in wholesale costs. When prices
retreat, market competition again influences a retailer's pricing decisions. During these periods,
consumer interest in prices wanes and they usually don't notice that prices dropped even though a
new shipment has not arrived.