How can gas companies not lower their gas prices even though the price of a barrel of oil dropped $10.00.?

I’ve watched the price of a barrel of oil drop over the past 2 weeks but the cost of gas remains the same.Is this because Labor Day is coming up and they want one big last gouge before travel season ends?

8 Responses to “How can gas companies not lower their gas prices even though the price of a barrel of oil dropped $10.00.?”

  1. Victor Says:

    The price of oil is only a small component in the price of gasoline. Even if oil prices were to halve, the price of gasoline at the pumps would fall only by a few cents. There is transport, refining, storage, distribution, labour costs, capital equipment costs, borrowing costs and so on. The raw material is a small part of total costs.

    Also, in a market economy, the prices of goods and services need have no connection with the costs of manufacture. Prices are set at whatever consumers will pay. On the day that consumers decide not to buy gasoline, prices may fall. But the oil companies believe that even a big increase in price will not result in serious loss of sales volume.

    In summary: the oil companies can charge whatever price they like for gasoline so long as it does not result in questions being raised by politicians. Politicians need to be seen to be doing something if there is national complaint which could damage their votes. But generally this is not a desirable action in a market economy, where intervention by government is unpopular in principle. That’s one of the benefits (or is it a cost?) of living in free market economy.

    Oil costs have fallen a little but there is no commercial reason why prices would fall as a result. The companies simply make greater profits and distribute higher dividends to their shareholders. In USA, this is normally applauded. Don’t forget the words of Calvin Coolidge: "The business of America is business." Meaning: whatever a successful business does, Americans will accept it.

    OK?

  2. Rex Says:

    It’s their profit motivation that makes them keep their oil prices high. Because there is a high demand for gas products the buyers are forced to buy at the companies’ price. It can be true that the companies are also taking advantage of the demand for gas during the Laboy Day celebration. But, generally, these companies like to rake in greater profits. As long as there is great demand for their products, they’re happy like heaven and hell to sell gas at higher prices.

  3. kitty Says:

    That’s a good question We are supposed to be using our own oil to keep the price down gas always goes up in the summer and down in the winter

  4. Anjaree Says:

    The NGV has different market structure and has no relation with oil. Its price is determined by the demand and supply in the market. But the liquid gas is a by-product of oil drilling process. The price determination has a closed link with oil price.

  5. Jonathan Says:

    As other correspondents have said it is most due to the market power of petrol retailers, however, they may well have bought fuel at high prices on futures markets and they may not be making such great profits.

    I doubt it though.

    Get the bus.

  6. SDD Says:

    a) Because the price of manufactured products does not move in lockstep with the changes in the ingredients to those products. The price of raw milk fluctuates. The price of ice cream does not.
    b) Even if it did, do you think it might take more than two weeks from purachsing the raw materials to delivering the finished product at retail?

  7. Spotty J Says:

    If you were selling something, you would not lower its price unless competition forced you to or you had trouble selling it. (And if you are too stupid to follow that advice, you would soon go out of business). Gas station owners are just behaving the same way you would.

    Besides, when the market price of oil falls, that has no effect whatsoever on the cost of gasoline sitting in the storage tanks that has already been bought. If the gas station owner drops his price, he’ll lose money on the gas he’s already bought.

    Furthermore, the price of oil is volatile. Just because it’s recently dropped $10 means nothing, it might go back up $10 tomorrow.

    Point being, gasoline sellers are reluctant to drop their prices unless they have to because their competitors already have and are taking away business. Hence gas prices are sticky on the way down.

  8. Bored Goblin Says:

    Oil price is $70-$74 a barrel: http://online.wsj.com/public/page/news-oil-gold-commodities.html