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Author
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Topic: Gas Prices in your area
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Frank Angel
Film God
Posts: 5305
From: Brooklyn NY USA
Registered: Dec 1999
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posted 06-07-2008 04:49 PM
Bobby, you are right, people are using less now out of sheer necessity, but so if that's true, and it is as the oil companies claim -- that it's demand that is driving the cost -- then since demand is LESS, how come the price keeps going up?
It's like EVERY summer, just at the driving season, up go the gas prices. Why? "Oh, because we had to take a refinary off line, say the oil companies." Like they couldn't take it off line during the winter. But it seems like that refinary never comes back on line because the prices never goes back down.
Same with the demand. The oil companies clain the prices are going up because of demand and the demand in the summer is greater -- it's supply and demand -- we get that. Well, how come then AFTER the summer driving season, the prices don't come back down, even though the demand subsides? I've watched that for years. Sure, they come down a few cents to make it look like there's a reduction, but they went up 15 - 20 cents and they never go back down as much. Of course now none of that applies because they are just going up no matter what the demand is. You said it yourself, the demand is significantly reduced in the past months. Well?! Where's the corresponding reduction in prices?
I tried to find the answer to a question I once posed here -- someone gave an explanation but I can't find it and I can vaguely remember it. My question is, let's say a gas station has a 5000 gallon tank and he fills it up at $3.00 a gallon. Then the price starts going up, why does he have to adjust the price with each increase that's unrelated to his purchase cost? He's already bought the gas! He is just adding profit because he can. If he sold it at the $3 price (adding his usual profit which is a given percentage over whatever the price purchase price), he would only need to raise the price the next time he buys another fill-up. No?
Other merchants do that all the time. If Target buys 2000 pair of shows for $12, and right after that the supplier raises the price to $15, lucky Target because it can sell its shoes at a lower price than its competition who now has to buy them at $15. Target doesn't immediatly raise the price as if the existing stock cost $15, they sell their shoes, still making his normal profit, but now can keep the price down because of the cheaper price he bought them at.
It's to the retailer's advantage to sell at a lower price -- it gets him more volume, more traffic.
There is no reason why every service station keeps raising the price given the CURRENT price when he's got gas in his tanks that he bought three weeks ago. Because he can, not because he's forced too.
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Bobby Henderson
"Ask me about Trajan."
Posts: 10973
From: Lawton, OK, USA
Registered: Apr 2001
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posted 06-07-2008 06:37 PM
quote: Frank Angel
Bobby, you are right, people are using less now out of sheer necessity, but so if that's true, and it is as the oil companies claim -- that it's demand that is driving the cost -- then since demand is LESS, how come the price keeps going up?
A lot of it is deliberate market manipulation, reality distortion, spin, etc.
Many business people who made lots of money laying waste to the housing industry are trying to find any way they can to protect their wealth. They've shifted a great deal of that money into commodities like oil, corn and rice futures as well as exchanging dollars for gold or other currencies. Unfortunately, lots of hedge funds, mutual funds and lots of other investment have also followed as opportunities have dried up elsewhere. I'm worried a lot of investors are way too exposed to oil in their portfolios.
Various business people involved in oil or selling oil futures are doing anything they can to justify the high prices even though the real truth is the flood of investment has caused those prices to spike artificially. The prices have nothing to do with supply and demand despite what these people say. Even though prices have been spiking lately, the number of futures contracts being sold has been declining over the last year. That sounds pretty odd. That's raising concern a correction could be on the way, and with the inertia of prices spiking higher and higher that could increase the momentum of a downturn correction. Most people want gas prices to be a lot lower, but they don't want a big chunk of their retirement fund to disappear in the process either.
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Frank Angel
Film God
Posts: 5305
From: Brooklyn NY USA
Registered: Dec 1999
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posted 06-07-2008 10:10 PM
quote: Mike Blakesley
In retail, you always need to base your selling price on what it will cost you to REPLACE the thing you're selling...not on what you paid for it.
Let's say I buy a widget for $2.00 and my selling price is $3.00. But then I get a new price list from the supplier saying widgets now cost me $3.00. If I stick to my old selling price, I can't replace my inventory and still cover my overhead.
I don't buy that. Retailers don't live from one widget to the next. Unless they are on the verge of bankrupcy, they buy as many as they can afford and they think they can sell. I would think it is the same with selling gasoline. The retailer lives from tank fill to the next tank fill, not from one gallon sale to the next.
In retail, they sell what they have in stock with enough markup to satisfy a reasonable profit based on the price they paid for it, not the price they anticipate they will have to pay for it next month or next quarter. If, say, car dealerships worked the way of your widget model or the way service stations seem to work, they'd have to change the sticker price on the cars in the showrooms every day, contimually marking them up based on what they think next year's models are going to cost them, which is nuts. They sell the current models for what they bought them for plus their markup. When the next years' models come on line, they shell out whatever's the dealer cost and add their markup then. The increase in sales price is made on the new model, not anticipated and added to the in stock models.
There's no good reason why gasoline is sold differently, other than it's a commodity that we as a nation obviously can't do without lest the whole economy collapse, so they can charge whatever they want.
Bottom line is that there certainly are gas stations that have large tanks of gasoline which they purchased at much less than the current price. If free market competiton was at work here, someone, aometime, somewhere, would be selling his gas at his purchase price and doing a walloping business. But prices all rise in unison, which tells me it's artificially controlled there is no real competition in play. We are getting screwed.
Steve is right though; should the actual price of those widgets go DOWN, which on occasion they does happen, if you;ve got that large stock of them, then yes, you will loose -- but such is the risk of being in business. So how come that never happens to gasoline retailers? THEY never get stuck with gallons of gas that they wind up having to sell at a loss.
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Bobby Henderson
"Ask me about Trajan."
Posts: 10973
From: Lawton, OK, USA
Registered: Apr 2001
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posted 06-07-2008 11:53 PM
The fact of the matter is oil producers have been price gouging the public over a lot of "what if" factors rather than what's actually going on in the market right now. So if the price of their "widgets" goes down, they've already covered their backsides on that point through hyper-inflated prices.
If Israel could go to war with Iran in 2010, guess what? We get to pay for it right now -even if that war never happens. None of us get a rebate if their bet of "what if" bullshit doesn't come to pass. But we get to pay for it as if it did.
I wish I could call up USAA and tell them they need to pay me $50,000 right now since I'm already a policy holder and there's a remote chance I could get into a car accident sometime later. Even if I never get into a car accident I'd like that money right now, thank you. This is the fucked, warped logic going on with commodities markets. We get to pay for their fucked guesses, even if they never come true.
Oil shot up a couple of dollars per barrel just over a stupid tropical depression forming off the coast of Belize, and that's despite the fact a hurricane premium is already priced into the market already. Again, we're talking about reality distortion and deliberate market manipulation.
I live in a state that profits a great deal off of oil and hurts pretty badly when the oil economy is in the shitter. Even if oil swings down hard, I won't have any sympathy for the plight of oil rights holders. Those folks had better be saving their excess money for that rainy day because none of us are going to forget how that industry has been screwing us.
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Steve Guttag
We forgot the crackers Gromit!!!
Posts: 12814
From: Annapolis, MD
Registered: Dec 1999
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posted 06-08-2008 08:27 AM
Frank,
Have you ever worked/owned a retail establishment? I don't know of any business that would not raise prices on existing stock once new prices are known to the retailer. Anslem pretty well explained it. A retailer that ISN'T going out of business is one that keeps up with their costs versus their profit.
Different businesses do it differently due to their purchasing and or volume. That is, if you have goods that you purchase such that you have say a 6-month supply...it make take most of those 6-months to see an increase coming and thus the retail price appears stable.
Manufacturers typically have annual changes in prices as they will look at the real costs of manufacturing an item whenever they actually make it again. Labor, materials or even compliance with new codes/laws could all affect this.
Your car analogy is really off base as they are inherently model-year dependent. As such, the price can remain stable for the entire year. However, the moment the new model year comes around, last year's model immediately is worth less merely because a new model is available. Gasoline is not model year dependant and it is changed, at the station level rather frequently and as such their purchase price fluctuates much more frequently. The station owner would be stupid to not track fuel prices daily. Have you noticed that these very same station owners don't change prices as often on the convienence store goodies? The market isn't nearly as volitile.
Mind you, I'm not defending the fuel companies that I think are indeed robber barons but in terms of retail...what the station owners are doing is not only not gouging but necessary to stay in business.
Now if you want to see fuel prices in the States drop...get the word "regulation" talked about and all of the sudden the speculation money will move to unregulated waters and prices will fall.
BTW...one would have to be blind to not see people in the US already changing their driving habits in both what they drive and when they drive. Again, due to the nature of living in this country, there is only but so much a person can do and continue to function.
Steve
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Mike Blakesley
Film God
Posts: 12767
From: Forsyth, Montana
Registered: Jun 99
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posted 06-08-2008 04:27 PM
quote: Frank Angel
If, say, car dealerships worked the way of your widget model or the way service stations seem to work, they'd have to change the sticker price on the cars in the showrooms every day, contimually marking them up based on what they think next year's models are going to cost them, which is nuts. They sell the current models for what they bought them for plus their markup.
The car business is a lot different from most other retail businesses. First, a car dealer usually has a large shop in the back which is where the REAL profit is made. (One dealership I know of pays its mechanics $13 - $18 per hour, but charges $59 per hour to the consumer.) They also sell parts at the "list" price, which is about twice what you would pay at an auto parts store for the same parts. Second, new cars have lots of built-in and add-on profit perks, some of which the consumer may never find out about -- like undercoating, "dealer prep," add-on accessories, holdbacks and much more. Third, used cars are a huge profit center too.
Also, cars don't change all that much in price from year to year, let alone day to day like gas can. You can bet that if Ford suddenly found out that it was going to cost $10,000 more each to produce cars starting next year, the price of Fords would jump right now.
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Until it really gets out of hand, I'll just do what I'm doing now, adjusting in other areas of my life. For instance, I rarely if ever buy any DVD's (thank you Netflix), I buy less clothes and when I do I shop around for bargains, the 99 cent store is my favorite place to shop (when I remember that I can save 2 or 3 bucks on certain items by buying it there instead of Target), etc. An extra $20 a week on gas isnt really that big of a deal to me just yet.
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