F... gas prices

Let's look at it from another angle. Say you're a bread store owner, and another natural disaster has created a shift in supply and demand that will greatly affect the price of bread -- maybe it's wildfires across the wheat fields of the midwest.

As the bread store owner, you see that since the wildfires have consumed a great portion of available wheat, you have to take action. Even if you have just received a full shipment of bread at normal market prices, you know the next shipment will cost much more. Since you have to pay for overhead, pay your employees, pay the onslaught of federal and state taxes associated with doing business, plus a little for yourself (you're not doing this for free, right?) you know that if you charge the same amount for the bread that you did before the wildfires, you will not be able to afford the next shipment without going out of business. So what do you do? You have to increase the price of the bread that you've already got stocked on the shelf in anticipation of the rising cost of bread that is sure to ensue.

The same thing is happening with mom and pop gas stations, even franchises all over the country. The evil, cold-hearted "Big Oil" companies are often the target of scourn and ridicule, but in reality, it's all a part of supply and demand folks.

This is exactly right. Gas stations actually use the futures contract on crude to guage the appropriate price per gallon for that day. The daily % increases in the futures contract on a barrell of crude tell the gas station what % increase they should apply that morning when they open the station.

Futures prices factor in future expectations for supply and demand. So when a hurricane appears in the gulf, and is forecast to head for the oil refinery regions, the futures price jumps up in anticipation of a negative shock to supply. Gas prices basically follow the futures contract of crude oil.

Where oil companies make all their money is when oil prices start coming down from a peak. Gas stations will raise the price of gas when the price of a futures contract for oil rises. But when the futures contract drops, gas stations aren't in a real big hurry to drop prices back down. The principle at play is called inelasticity of demand, for all you econ nerds out there. Basically it means that gas is something we all need, and we're willing to keep paying for it even as prices get to exhorbitant levels.

Gas prices seem to go up so fast because on the way up, they're simply following the price of the futures contract. But when the futures contract drops, gas stations know they don't have to drop prices right away, they know that if we were willing to pay $2.70 per gallon for the last week, we'll be willing to pay it again this week. So they try to hold it at $2.70 as long as they can. Then a station decides I'll set my price at $2.68 and people will flock to me to save money. Then the next station sets the price at $2.66, and then someone comes in at $2.64. And slowly but surely, this price competition brings the price back down.

That's why gas prices seem to go up so fast and come back down so slowly. It's a commodity we need, and we're kind of at the mercy of those who set the prices.

I mean think about it. At what price point would you decide OK that's it, I'm selling my car and taking the bus/train everywhere. It would have to get to like $5.00 for me to make that move. It's just the nature of the beast. The prices are what they are because America can't shake it's need for oil.

And you can't blame the gas stations for lowering the prices slowly like that. They're just trying to make a buck when the opportunity presents itself. Blaming them would be like blaming Chris Samuels for negotiating for a salary befitting a pro-bowl LT. If you were in Samuels' shoes, you would try to get the money that was coming to you, too.

Crying about big oil or the prices set by gas stations does not get at the heart of the problem. If America wants oil prices to drop, we need to stop being dependant on oil.

OK that's enough posts in a row. I feel like I'm talking to myself. Goodnight boys.

Supply and Demand is definitely the all-encompassing argument and is the biggest driver. But it's important to look at what's driving the increases in demand. A big part of it is developing markets (China and India) ramping up their manufacturing and using more oil. On the supply side, supply is dropping because of conflicts in Iraq and tensions with Tehran. Here's where you can get political, and I'm not going to jump into the fray in a political argument, but Bush's excursion into Iraq is definitely not helping gas prices. Whether or not we're justified in being there, that's another story and again I'm not going there.

But Matty, those are the two biggest factors at play here. What else is it? Are you accusing big oil of price gouging? Because if so, I hope you have some numbers to back that up.

Are you implying big oil is just an innocent profiteer? They're just simply raking in record profits because of good 'ol economics 101, supply and demand? Please.

I'm not exactly bringing up a new concept here regarding oil companies and accusations of price gouging.

Supply and demand is the sole culprit when it comes to PRICE of gas. Oil companies are far too public to have legitimately gouged consumers.

Now the real complicated issues lie with the supply part of the equation. That's where eveything is totally F'ed up. Screw big oil for that and especially the f'ing weather that is killing our supply. Oh yeah and F our entire government for not taking action to reduce our demand for oil. If the government would make alt fuels viable(ie: cheap and effective enough to drive demand) then we wouldn't be in this shape. There needs to be serious tax breaks for alt fuel vehicle owners and gigantic tax breaks for car companies who develop them. I am not a big subsidy type guy but in this case the only thing that is going to move the car companies along is money. There is no other good incentive for them to get us quickly into position to use enough alt fuel vehicles to actually make a difference.

part of the problem may be supply and demand but the other problem is competition. companies drive prices down to get you to buy from them not someone else. When all the companies are getting together and setting prices this is preventing competition. They realize ppl need gas and that ppl will pay no matter what so they can set it higher.

i dun understand that futures thing that guy was talkin about it was wayy too much reading.

mine is shorter so believe me cuz mine is quicker to read

o and dont read his

By the Numbers (http://money.cnn.com/2006/01/30/news/companies/exxon_earns/)

Exxon posted a 30% profit increase during the last quarter from the previous year... the annual 36 billion earning was the largest net profit in US history. Overall, the 12 US oil companies in the S&P saw close to a 50% increase over the fourth quarter.

We're not using twice as much oil as the year before... supply and demand is a part of the equation. but there's a correlation between what we're paying at the pumps and the increasing belt size of these fat cats.

all it took to lower the prices was an hearing by congress to TALK about gouging and the record prfits being enjoyed by all the big oil companies.if bush wouldnt have so many buddies in the energy field,he might actually try to do something about this problem.but then again,why bother when the man doesnt even own a legal driving license

sorry about the rambling

Also, don't haul around fat people. They'll kill your mileage.

So that's my problem. Damn...I need to lose some weight then ;)

The one thing no one has pointed out is the reduced amount of refinery production in the last 10+ years. There is sufficient supplies of oil coming into the country, but because of refineries closing and/or not being run, the supply of usable fuels has dropped. Part of Big Oil's profits come from the fact they have less maintenance and labor to pay for in regards to their refineries. And from what we saw from Katrina, a 1% drop in refinery production can wreak havoc.