Gas prices

[hbarcat]

The oil companies basically do what they want and charge what they want.

. . . since the oil companies know we need the oil they can more or less make the prices as high or low as they want.

The price sets itself according to the law of supply and demand. Companies that charge more or less than the optimum price will fail to make enough profit to stay in operation.

Oil companies make about 8% profit, which is lower than almost any other industry. Gasoline is very much a free market and there is plenty of opportunity for someone to come along and try to sell gasoline cheaper than any other company if they think they can do so and stay in business.

 

[IconBasser]

gasoline by definition of what it's used for has a highly inelastic demand curve. The entire world depends upon it to run their economies.

gas companies can charge whatever they want because gas is one of the few commodities that the general public needs instead of simply desires. If gas prices were to triple overnight, would people be upset? Hell yeah. But would people stop buying it? Not a chance.

until a viable alternative is produced on a competitive scale, there will not be any competition amongst fuel providers, and therefore there will not be drastic cuts in the price of gasoline. Right now, gas has free reign in the energy market. Until that is changed, we're stuck with whatever prices the gasoline providers choose to offer us.

 

[NJL]

prices will go even higher once we go back to the "summer" blend.. we have two blends of gas in most places.. check it out..

 

[hbarcat]

gas companies can charge whatever they want because gas is one of the few commodities that the general public needs instead of simply desires. If gas prices were to triple overnight, would people be upset? Hell yeah. But would people stop buying it? Not a chance.

That's not how economics works. The gasoline industry is a true free market (regardless of what the conspiracy mongers allege) with many companies competing to sell gasoline for a profit. The price of a gallon of gasoline has nothing to do with what the oil company "wants" but is 100% determined by the law of supply and demand. If the price of gasoline was higher than it is now, people would buy less of it and the companies would earn less total profit. If they lowered their prices, they would sell more gasoline but at a lower profit margin and they would again earn less total profit. This is really the ONLY consideration companies have when setting price and it's NO different from any other company when they have to figure out what to charge for their goods or services.

If the price of gasoline were to triple, then people definitely would buy a lot less of it. We know this because the cost of gasoline was recently about a third of what it was this past summer and people were seriously cutting back on gasoline use then. That's how supply and demand works.

The cost of gasoline is adequately explained by basic economic principles without having to invoke illicit motives, conspiracy theories or cold hearted greed.

 

[IconBasser]

I wasn't using conspiracy theories as the basis of my argument. And, yes, I exaggerated the total inelasticity of fuel a bit.

The goal of every corporation is the make a profit.

that said, when the price of crude oil falls, the cost of inputs for gasoline suppliers is slashed. Their profits at the current price level increase. Because of the heavy reliance of the world upon gasoline, gas companies can afford to keep prices relatively high. As the general public expects lower gas prices, the suppliers will gradually adjust their prices downward to explore a new equilibrium. The key word here is gradually, as the gas companies can afford to dawdle and soak up those new juicy profit margins for a short while because of the necessity of their product.

 

[Selta]

Because there's SO MANY awesome goodies to buy on the TB classifieds!

Oh wait.
Not that kinda GAS eh?

 

[Geddyfleaharris]

The price sets itself according to the law of supply and demand. Companies that charge more or less than the optimum price will fail to make enough profit to stay in operation.

Oil companies make about 8% profit, which is lower than almost any other industry. Gasoline is very much a free market and there is plenty of opportunity for someone to come along and try to sell gasoline cheaper than any other company if they think they can do so and stay in business.

I respectfully disagree with you that the price of gas right now is based on supply and demand. Supply has flooded the market and demand is very low yet in western Canada gasoline prices have risen in the last week. I agree with Iconbasser that this is simply the oil/gas companies trying get the most money out of consumers that they think can while a new stabilized price is found. I am part owner of a heavy construction company and while I do not claim to be an expert I obviously watch the price of fuel very closely. Next to wages it is our biggest input cost. 8% is very much in line with what my industry makes for profit but the difference is the the scale. I am obviously working on a much smaller scale. I do not have billions of dollars in profit. Around my parts the price of gasoline jumped basically 10% last Friday. How is it that EVERY gas station raised their prices the same amount at basically the same time? If a lot of other industries tried to raise their price 10% over night with very little justification for why it was happening consumers would tell them to take a hike. If a burger joint jacks up their price I can go to a different burger joint or not buy a burger at all. But fuel is a huge part of my daily life between the business I run and the fact that I commute. I have no choice but to pay the price.

 

[hbarcat]

Around my parts the price of gasoline jumped basically 10% last Friday. How is it that EVERY gas station raised their prices the same amount at basically the same time? If a lot of other industries tried to raise their price 10% over night with very little justification for why it was happening consumers would tell them to take a hike. If a burger joint jacks up their price I can go to a different burger joint or not buy a burger at all.

Good questions. The answer is in understanding how supply and demand operate in a practical sense in a free market.

Crucial to this understanding is knowing that the only real factor that makes people decide where to buy gasoline is the price. For 99% of customers there is no difference between Brands A, B, C, D, E and F except for the price, and that's why every gas station advertises the price on the GIANT sign out front. This makes for a very competitive market and the owners are always monitoring everything that affects their cost, such as cost of oil, change in weather, shut down at a refinery, etc.. Because they've gotten good at reading how customers react to price changes they can set new prices overnight to get pretty close to what the market will bear while still making their profit margin.

That's why when a cold snap hits most of the country, gas prices will go up .10 a gallon within a day or two. They won't all go up the same amount, because a few stations will be a bit cheaper and a few will be a bit more expensive, but they will all be fluctuating pretty close to a median price and the owners will keep fiddling with that price as they gauge what customer reaction is in their local market. Then the next thing happens to affect their cost, either up or down, and they adjust their prices accordingly.

But every bit of this is geared toward making a certain profit margin which has nothing to do with what the companies "want", it's just what is. They know that the 8% is what the market will bear and they can't operate outside of that.

To put it another way, suppose that there are 10 gas stations in town and 9 of them respond to a cold snap by raising their prices .10 while 1 station keeps their prices the same. That station will lose money. Not just make less money, but actually lose money. The same thing would happen to a station that decided to raise its price by .20 when everyone else only raised it .10. Nobody would buy gas from them and they'd have no revenue.

The reality is that the price of gasoline is set by the people who fill up their vehicles by virtue of the decisions they make in where to buy gasoline and how much they'll buy there.

 

[tasty sweeps]

Really, as a corporation whose sole purpose is to generate money, they don't need an excuse to raise prices. They can raise them as high as the market will bear (and further, but that would be a dumb business model).

What amazes me is the sense of entitlement everyone seems to have. Nobody owes you cheap gas. Ask Europe. I wish I could find a car that ran on "people bitching about the price of gas".

Mike

they've established multinational, private, unaccountable tyrannies that control what is currently the fuel of most industry and the survival of millions of citizens [debtor slaves] but they'll play with prices and 'the market' will do what exactly? form lines around the block to top off. because you can't have a free market without a free society. and free societies don't exist in wage slavery systems.

but i totally agree about people bitching about gas prices. the public needs to push for better means. oil is a strategic asset for oppression.

 

[hbarcat]

they've established multinational, private, unaccountable tyrannies that control what is currently the fuel of most industry and the survival of millions of citizens [debtor slaves] but they'll play with prices and 'the market' will do what exactly? form lines around the block to top off. because you can't have a free market without a free society. and free societies don't exist in wage slavery systems.

but i totally agree about people bitching about gas prices. the public needs to push for better means. oil is a strategic asset for oppression.

You forgot this:

 

[mike_v_s]

they've established multinational, private, unaccountable tyrannies that control what is currently the fuel of most industry and the survival of millions of citizens [debtor slaves] but they'll play with prices and 'the market' will do what exactly? form lines around the block to top off. because you can't have a free market without a free society. and free societies don't exist in wage slavery systems.

but i totally agree about people bitching about gas prices. the public needs to push for better means. oil is a strategic asset for oppression.

Wow. If they are truly "private, unaccountable tyrannies that control what is currently the fuel", then why does the price even fluctuate (re: play with the prices)? Right now, I'm paying half of what I paid last summer. Anyone with total control over price is doing a pisspoor job with that much variance. I'm gonna go refill my black helicopter with cheap gas.

Mike