I worked in the Oil and Gas industry for over 30 years...

[CapnSteve]

...and I was asked many, many times: "when the price of oil falls, why doesn't the price of gas fall as well?"

The answer is surprisingly simple: The price of a barrel of oil is based on speculation - will the future price of oil increase or decrease? It is commodity traders placing bets based on nebulous, often unreliable data. Like the effect of the 39 claims that the Straight of Hormuz with open, OPEC limiting production, or predictions of a harsh winter in Europe, etc.

The price of a gallon of gas is only based on "what the market will bear." Just like any other consumer product, businesses (in this case gas stations) charge as much as they can to maximize profit. They only back off the higher price when it decreases sales. You will see local gas stations compete for customers by lowering their prices a few cents here and there.

Oil companies raised gas prices using the excuse of Trump's war on Iran. Now, "what the market will bear" has been set well over $1.50 per gallon more that before. The price of gas may come down a bit, less than 50 cents a gallon, but the new normal has been set for the market.

[underpants]

1. 👍 Rec'd

[gab13by13]

2. Excellent explanation

I think it's worse than what the market will bear, I think the price is being manipulated, I think that OPEC is on the outside looking in.

China has had more to do with the price of crude not going any higher than other considerations. China's demand for crude has dropped way down, will it stay that way?

So many countries using up their strategic oil reserves designed to keep the price of crude down, then what?

IMO if a Democrat were president, crude would be well over $100/barrel, the market takes care of Republicans, after all, Krasnov gave the store away to the fossil fuel industry and stymied clean energy, the fossil fuel industry owes Krasnov.

[kacekwl]

3. And the media will

celebrate falling prices to a dollar more than when this shit started.

[GreatGazoo]

4. They will keep the price as high as possible for as long as possible

But the price of a gallon of gasoline is influenced by many factors:

seasonal demand
work from home policies
pandemics
the amount of ethanol allowed into the mix
the available supply of each specific blend -- 87, 89, 91, 93, jet fuel, etc
10 other things

Yes oil futures involve speculation but now many large customers locked in high cost for months. IOW if UPS, Walmart, Fedex bought September futures when the price was $110 they are stuck with that. Oil futures are used reduce risk and uncertainty. For example, airlines sell tickets months in advance so they need to know what their fuel costs will be for Thanksgiving travel. They do that by buying October and November deliveries (futures) now or two months ago. If they bought at $110 then they aren't going to get a discount to $80 today.

'Speculation' sounds like a greedy, frivolous thing but it means some had to buy and some had to sell oil futures and neither one knew with any certainty whether prices three months into the future would fall back to $60 or rip to $150. Futures traded at $105 to $120 because it splits the difference.

[CapnSteve]

5. Great detail!

Also, the price of a barrel of oil is dependent on the relative strength of the US dollar, since oil price is reported in USD.
Strong USD = lower oil price.
Weak USD = higher oil price.

[CapnSteve]

6. Yes, but...

….I would argue that all those influencers on gas prices that you list are weak influencers. The strong influencer is what the market will bear. Also, I was focusing on the general consumer, not, for example, airlines who buy up fuel futures to hedge against rising prices (as SWA did successfully a few years back).

Regarding oil speculation (which is the same as stocks, orange juice, etc.) - there is the argument that the US should identify oil as a strategic resource and limit futures trading of it. That would have a stabilizing effect on the price of oil.

Not to distract from the original purpose of the OP: to highlight why the price of a barrel of oil is disconnected from the price of gas.

[TexasBushwhacker]

7. Same goes for groceries, imported items, restaurant food,

you name it. Introducing this volatility in the market just allows the providers to see just how much we will pay for their items. I mean, the price of eggs is back down to just about as cheap as they can get. Do you think Denny's, Cracker Barrel and IHOP are going to reprint their menus with lower prices for their 3 egg omelettes? Hell no! At least not until they have too!

[littlemissmartypants]

8. Well done. Thank you. ❤️

[popsdenver]

9. The same thing is taking place

with EVERYTHING.......Utility prices, grocery prices, medical care, medicines, insurances, property taxes etc............
The list is endless..........The Corporations have made out like bandits since 2016, along with these new ROBBER BARRONS...
The Republicans should re name the U.S. to: ........ The United Corporations of America......

WASF

[dlk]

10. The price of gas is based on how much oil companies can get away with

Since they have a captive market, they raise prices whenever they feel like it.

[onenote]

11. If the "new normal" doesn't come down, how does one explain this:

The price of a gallon of regular was $3.095 in January 2011. In February 2019, the month before the pandemic hit, it was $2.309. In between, it moved all over the place, hitting a hiigh of $3.90 in April 2011 and a low of $1.76 in February 2016.

Seems like the market price doesn't just go in one direction. https://www.eia.gov/dnav/pet/hist/leafhandler.ashx?n=pet&s=emm_epmr_pte_nus_dpg&f=m

[kimbutgar]

12. These repuke oil companies are making massive amounts of money off our suffering.

[IbogaProject]

13. We passed peak oil use

So now quarter by quarter demand will ever so slowly decrease. The lack of growth will wreck havoc on the oil industry's financing.

[OC375]

14. If it's been 6 months, it isn't temporary. It's just life now...

[multigraincracker]

15. After I retired from regular job

I got a job a few nights a week at a gas station. It was a major brand and I learned they didn’t make much on fuel. Their profit was from the junk they sell inside.
Never buy anything inside the station until the price comes way down and you’ll be sticking to them. I stop at discount for cash stations when ever I can. That cost them.
I’d rather help the small mom and pop stores for snacks and such.

[Skittles]

16. they sure don't waste any time jacking those prices UP

no INDEED