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We can all sense it even without looking at the numbers -- gas prices rose very quickly when oil prices had their huge run-up, but since oil prices started falling, gas prices didn't match the declines. Indeed, since oil reached its record price of $147.27 a barrel on July 11, it dropped over 26% to around $107-108 today. Gas prices peaked at $4.14 a gallon on July 17, but have fallen only 10% since. Comparing weekly data from the EIA shows a similar, if less extreme, picture. Why is that?
Economists differ in their views of why this asymmetric pricing happens. In the case of gasoline, it seems to be the "fault" of the consumer. Since information about oil prices is readily available, consumers know what to expect even before they go to the pump, therefore behaving differently during times of rising and falling oil prices. This, in turn, limits or allows for larger gasoline price changes.
During times of rising oil prices, consumers are very price conscious and shop for deals. Sure, since gas stations take delivery often, they'd be eager to pass on the price increases to consumers immediately. But as most consumers comaprison shop, gasoline retailers are limited by the amount they can hike up prices.
When oil prices go down, however, consumers are less alert to prices and compare much less as long as they see even a small price reduction. This allows gasoline retailers to lower prices at a slower pace as they recover some of the profit margins lost on the way up. No wonder so many oil companies have been exiting their retail operations lately.
Conclusion: If you want to pay near $3 a gallon again, always shop around!
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Reader Comments (Page 1 of 1)
9-03-2008 @ 3:42PM
Dave said...
This article is pure drivel. There is no such thing as "supply and demand" at work in gasoline pricing. Interesting how gas is $3.68 +\- 0.01 all over town. Any coincidence? Or how all gas stations raise their prices in town within hours of each other? I asked a station manager how gasoline pricing works. I was told "they get the number called to them by their central office". One of the greatest untold stories is about how gasoline companies set the price in any given community. This is greed, pure and simple. Speculation makes the price zoooom. And greedy oil companies sloooowly deflate the price when there is an oil price decline. Its absolutely UNAMERICAN how these people can get away with this. They have unmercilessly raped the American People with the help of Bush/Cheney and company. Thank God they will be gone soon. And I hope the door doesnt hit them in the ass.
9-04-2008 @ 12:37AM
Maria said...
I definitely agree with Dave. This article made a minor point but overall was way off the mark.
9-04-2008 @ 5:39AM
Dave G said...
As I understand it, the price posted at many gas stations is determined by an outside consulting service that most major gas retailers subscribe to. This service takes data from the location's history and develops a price sensitivity model for that particular corner. That is, the consulting service determines the optimal price to maximize profit at any given time. If you want to see the price continue to go down, park your car and drive less. As inventories stack up, the price will come down - guaranteed.
9-11-2008 @ 12:20PM
FM said...
Any way you look at it,...
If gas prices don't come down where it should be it's PRICE GOUGING!
. . .
(1 barrel Oil price vs. 1 gal. Gas price)
(then) OIL $100 GAS $2.79
(was) OIL $147 GAS $4.29
(now) OIL $105 GAS $3.97 (should be ~ $2.89)
. . .
NO comments needed about Cost-Of-Living went up... the oil industry CAUSED IT!!!
. . .
GET THE GAS PRICE DOWN NOW!!!!
America has spoken!