Why isn’t the fall in crude oil prices proportionately reflected in the price of gas?

In San Jose when crude oil was selling for 7 per barrel, the cost of gas was .50 per gallon. Now that crude oil has dropped down to — a 46% drop — gas has only dropped down to .85 — a mere 17% drop. Why the rip off? And what can we do?

7 Responses to “Why isn’t the fall in crude oil prices proportionately reflected in the price of gas?”

  1. Ashleigh Says:

    It’s 100% AMERICAN born, AMERICAN bred GREED.

    OPEC and "big oil" DO NOT control RETAIL prices… AMERICAN store owners do. If their invoice is for $2.50/gal and they are selling for $4.50/gal…that’s AMERICAN greed.

    Go USA!

  2. Kaz Says:

    Hmmmmmmmmmmm, could it be Big Oil trying to get record profits again?

  3. Anna Says:

    I think it takes a while for the prices at the pump to actually reflect the actual per barrel price.

  4. Matt H Says:

    yes there is a relative lag in prices at the pump and also gas prices do not necessarily reflect the oil prices because gas prices are a guess on the oil price in the future. thats why the percentages don’t match up

  5. Dane_62 Says:

    Because oil bought on the commodities exchange is not ready to be used a gasoline so oil prices are only one factor that affects gasoline prices another major factor is refinery production (the places where oil is turned into gasoline). Unfortunately there hasn’t been a new oil refinery built in the United States since the 70’s because the government regulations are a nightmare.

    The refinery problem is only going to get worse after hurricane ike because that shutdown a whole bunch of refineries in texas.

    beingsma..

    has some flaws her analysis, she’s not taking into account geographical barriers and competition. The reason gas stations and even gasoline companies will lower prices once the supply of actual refined gasoline increases is because of local competition. One company is eventually going to decide "hey if drop prices everyone will want to buy from us so we’ll actually make more profit." then a competitor will do the same and so on till the prices get back to a rate reflective of supply.

    In the labor situation she was describing the reason American wages don’t go down to compete with Indian wages is because 1. American works are more valuable especially work with American customers ( they are geographically closer, understand the culture, speak the language better, and a probably better educated.) 2. There are still plenty of equivalent American jobs left.

    If all the jobs in America went to India, then a balancing act would occur where wages in India would go up and wages in America go down and they’ve even out.

  6. beingsmartisrelative Says:

    In Economics, prices are what they call "downward sticky". Companies will not drop their prices to the same level as supply. It is a psycological thing.

    Just think of it this way…

    An American worker gets paid $25/hr for a particular job. For that same job in India, a worker gets paid $9/hr. Companies states that moving to India would be much better for them because labor is cheap. If $9/hr is the wage paid to the majority, technically, an American worker’s wage should go down to $9/hr. Think about how you would feel if you got $9/hr for this job? It would stink, right?

    Well, that is the same philosophy that the gas companies have regarding the prices charged to the consumer. The right thing would be to decrease the price but it doesn’t happen because the oil company can’t see reducing the price they can get for a particular commodity.

    Some people will say we should regulate the industry. Think about what it is like with the electric co, water co, etc. That is what the gas companies would do. You will probably pay more a gallon for gas than what you are paying now. AND…there would be no competition. I think that the government should go after the speculators/manipulators of the market.

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