sptster1200

Just wondering why gas prices are so cheap. Crude oil prices keep breaking records; today just shy of $144.00 per barrel. I would think that the price at the pump would also be jumping exponentially. However, looking at several stations prices, they still seem to be hovering at the same level as when crude was at $125.00 per barrel. What's the deal? Is the government subsidizing the oil refineries?

Nightshade

It has a lot to do with the devalued dollar. That is why Europe & other countries pay
so much more in reality. Cry all they want Americans still have cheap fuel when you
balance out currency exchange rates.

zmorgan

How is diesel doing? It seems like a lot of companies are subsidizing unleaded prices by raising diesel prices. Also, it may just be that the costs haven't made it to the pump yet. The stations are probably concerned about getting slammed with gouging fines if they raise their prices too earlier in anticipation of increased unleaded prices.

sptster1200

Diesel is also holding pretty steady. My concern is that something or someone is hindering the price at the pump and like the dikes in the midwest are going to break. A steady climb in prices is something though hard is a lot easier to grasp than a shocking jump of 50 cents or higher.

annc

A weak dollar will cause prices to rise not stay constant (each dollar is worth less than before so you'll need more dollars to break even). And gas prices in Europe are much higher because half of the amount is tax (compare to the 18 cents per gallon federal tax).

derath

Not positive but it may also be due to a delay. I always hear on the radio that the price per barrel is $XX for [insert month in future] delivery.

-D

Scummer

Those are the prices for future contracts, not for the current price of oil. Meaning, the contract guarantees a barrel of oil is going to be delivered at a specific price of 144$ in August, since the August contracts are going for 144$ if you buy it right now. Now for example if you do actually take delivery of the oil in august and you've bought a contract today for 144$, you pay the seller 144$ and the oil is yours and if you're lucky, the price of oil has even gone up more and you can sell the oil for profit or use it for your consumption or the price of oil goes down and you take a loss.

gooch

Scummer's spot on. Also what you hear quoted on the news is the "spot market" price. Oil you have to buy right now. Just like when you buy milk at 3AM at the 7-11 it's much more expensive than the grocery store. Refiners (who make gasoline) often buy on long-term contracts that may have no relation to the spot market price. Many of the independents are still selling oil at around $80/barrel, and losing tons of money in the process. As those contracts run out, the price of gas could rapidly rise, unless the cost of oil declines.

Dave.

Scummer

On more thing I forgot to add. Futures have a settlement date, means that's the time the goods will be delivered and the price for the goods need to be paid.
So currently, when you look at future prices of crude oil, let's say June 2008, and the contract for the June futures were at 120$/barrel, that's the stuff that gets currently refined and will hit the gas stations at the price of the future + the profit from the refiner.
Now the August futures as far as I've seen in the news are 144$/barrel, so from the June 2008 futures, which are 120$ to the August futures which are currently at 144$/barrel, that's a 20% increase in crude oil prices and most likely will reflect in 20% rise of gasoline at the point by august/september of 20% to over 5$.

mike

As all of you who are in business know - neither increases nor decreases in COST really change price.

Price is set by the consumer - by the market. This goes for gasoline too.

The price of oil can go to $100,000/gallon, but it does not mean that consumers will spend $1,000 per gallon of gasoline just because the cost of crude went up.

Sure, sellers can TRY to pass cost increases on to the consumer, but if the consumer is not willing to pay the higher prices and does not make the purchase, then the seller is stuck with inventory.

We have many new members to bicycleforums.com who are motivated by the high prices of gasoline to bicycle rather than drive. These are consumers who have reached their threshhold of pain at the pump and are making consumption changes.

The producers and sellers of gasoline are keenly aware of the delicate balance of price and volume. They are delighted with the higher prices, but they also need the volume. When buyers start to change their lifestyles to use less gasoline, that can mean permanent changes in the volume that they sell. If they push prices too high, buyers will find alternatives and it is not often easy to get buyers back once they make the changes.

As buyers replace their 8 mpg trucks with 30 mpg mid-size cars, that change will remain for the 10+ years of the ownership of that fuel-efficient car. The fuel producers/sellers know this and they must adjust pricing upward to just the threshhold of pain for the consumer - uncomfortable, but not uncomfortable enough to make a change.

Platy

I think we're at an unstable point now where the refiners and retail distribution chains are eating most of the increased cost. Some companies can do this a little longer than the others. The first company that has to give in and sharply increase its price loses all its customers and goes out of business. It's a lot like the airline situation.

adgrant

I would expect to see a continual steady increase. Once the price of oil starts to fall, I would expect the price of gas to decline very slowly.

gwd

Gee, I don't get economics. I would guess that the instability is from the price being so much more than the cost of production + profit and if the Saudis are correct that demand is being met, then there is a likelihood of a collapse in oil prices back to $80 /bbl. If enough people go car free etc. to actually reduce demand maybe the more expensive producers will go offline with a further reduction in price. I'm guessing that this is the reason our government isn't doing anything serious about conservation, they're just trying to give new cheap drilling sites to oil companies while the price is high so their buddies can make a bigger profit. If it weren't a bubble but real shortage the government would reduce speed limits encourage car-free living, put the solar panels back up on the white house etc. you know all the obvious rational stuff that good governments do.

zmorgan

The high prices themselves promote these things (slower driving, conservation, etc). Nobody says you have to drive at the speed limit.. in most places there isn't even a minimum.. just have to follow the laws about blocking traffic too long (which we all know about riding bikes on the road, eh?).

Dahon.Steve

Everyone thinks or is hoping that once the motorist changes cars, the price of oil will drop. It doesn't work that way because world consumption is increasing making it impossible for a glut to occur. It's only when their is too much oil on the market that prices will decrease. Furthermore, all OPEC has to do is decrease production and the price of oil stays the same or increases.

Heck, the first shot fired at Iran and the motorist will remember how cheap $4.00 dollars a gallon was!

belfast-biker

We also tax ours to the hilt. Not that I mind of course, despite the increase in food transport costs etc.

countersTrike

Oil was $145+ this morning; $144.18 now. It is just a matter of time- gas prices will follow, I assume. Financially painful for many people; and I can't blame them for stretching loss as far as possible.

Very positive oil is hitting the stratosphere in many respects, for me anyway!

yes

A barrel of oil is 42 gallons.

At $145, that breaks down to $3.45 a gallon.
Add on 7% for refining costs, 7% for refiner profit, and you have $3.95.

Add in about 50 cents of tax,
https://en.wikipedia.org/wiki/Fuel_tax#North_America
and you get $4.45.

Spot prices have been as high or higher than futures prices this year, and no one is eating a big loss.

If oil for some reason does reach $200 a barrel, expect $6.00 gasoline.

gooch

1 gallon of crude != 1 gallon of gasoline! You also left out any profit for the retailer selling to the consumer, which often isn't the refiner. As you can see there isn't much profit in gasoline sales, just a lot of volume.

Newfield is an example of an independent taking some pretty big losses. They are expecting almost $500 million loss this year due to having go onto the spot market to fulfill their contracts according to Barron's. I know of a few others in similar predicaments as well.

Dave.