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Old 10-19-2011, 09:42 AM  
TEX TEX is offline
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Gas Price Question?

I see that the price of oil went up a bit overnight and the price of gasoline immediately followed. Up a few cents from yesterday, which is up a few cents from the day before. And up about .10 cents since last week. I was wondering how come when the price of oil falls, it takes awhile for the price of gasoline to fall? A local TV station in Houston did a story on this and reported that the price of the gas at the station has already been paid for so when the price of oil falls, the savings at the pump is not reflected until the supply on hand is expired. Why isn't that the case in reverse?
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Old 10-19-2011, 01:00 PM   #31
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Quote:
Originally Posted by banyon View Post
Your post talks about prices moving up and down, but the focus here is on why the rate of price change (price acceleration) is different when dealing with the same product.
That's those business owners winning more than they lose. Cost of doing business. My only point is that the people who operate these franchises aren't responsible for the cost of gas disparity. They're hedging at that point. If you want to talk about gigantic corporations contribution to gas prices then all that is way over my head and I couldn't begin to fully comprehend nor explain the dynamics involved.
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Old 10-19-2011, 01:02 PM   #32
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Originally Posted by jspchief View Post
Of course they are. The link Donger provided spells it out clearly.

They raise the price in anticipation of increased wholesale costs, even if that means selling gas they already bought for a higher margin, but they lower prices more slowly so as not to sell for a lower margin.

Plainly put, the issue isn't the slow decline of gas prices, its the rapid increase. And it happens rapidly because it briefly allows for higher profit margins.
I don't know what business you're in currently but if you have a warehouse full of shingles and the supplier raises the price of those shingles effective Sept 1, do you continue selling shingles at the lower price on Sept 2? No. You have to pay for your warehouse, your staff, and buy momma a tropical vacation.
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Old 10-19-2011, 01:04 PM   #33
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All that said, I actually don't manage much inventory. If I get a good deal on something, I pass on significant savings to my client. But I do understand why other business owners operate the way they do. They're better businessmen than I am.
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Old 10-19-2011, 01:04 PM   #34
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Originally Posted by Amnorix View Post
You can whine all you want, it's capitalism, pure and simple. Basically gas stations are in competition with each other. You don't like the prices you're paying, then find the cheapest station and go there, or cut out some driving. It's not even unethical much less illegal.

And keep in mind that many gas stations are owned as independent franchises. And their profit margins on gas are VERY slim. So you can bitch, but when the guy owning the gas station has a profit margin of <5%, I think your bitching is pretty seriously misplaced.

http://seattletimes.nwsource.com/htm...tailers30.html
I've learned that some people simply don't care about (or don't understand) profit margin, at least as it relates to "Big Oil."
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Old 10-19-2011, 01:05 PM   #35
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Quote:
Originally Posted by Phobia View Post
That's those business owners winning more than they lose. Cost of doing business. My only point is that the people who operate these franchises aren't responsible for the cost of gas disparity. They're hedging at that point. If you want to talk about gigantic corporations contribution to gas prices then all that is way over my head and I couldn't begin to fully comprehend nor explain the dynamics involved.
As anti competitive practices go, the phenomenon of regional gas stations milking their customers a bit with a little local oligopoly actions, this probably doesn't make the top 100 worst practices on a list.

But to a small degree, I do think there's plenty of anecdotal evidence to think that this does go on (e.g., prices in Katrina, Iraq War I, etc.)
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Old 10-19-2011, 01:06 PM   #36
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Quote:
Originally Posted by Donger View Post
I've learned that some people simply don't care about (or don't understand) profit margin, at least as it relates to "Big Oil."
Ha.

More like some people think profit margin is the end of the analysis when it isn't.
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Old 10-19-2011, 01:07 PM   #37
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Quote:
Originally Posted by Phobia View Post
I don't know what business you're in currently but if you have a warehouse full of shingles and the supplier raises the price of those shingles effective Sept 1, do you continue selling shingles at the lower price on Sept 2? No. You have to pay for your warehouse, your staff, and buy momma a tropical vacation.
To make the comparison fit, I'd be raising my price in August and pocketing the increased margin on my existing stock.

Which isn't to say it's the wrong way to do business. But let's not pretend it's "not my fault" that I chose to reap the rewards of increasing my margin on existing stock.
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Old 10-19-2011, 01:07 PM   #38
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Quote:
Originally Posted by jspchief View Post
Of course they are. The link Donger provided spells it out clearly.

They raise the price in anticipation of increased wholesale costs, even if that means selling gas they already bought for a higher margin, but they lower prices more slowly so as not to sell for a lower margin.

Plainly put, the issue isn't the slow decline of gas prices, its the rapid increase. And it happens rapidly because it briefly allows for higher profit margins.
Yes, they are responsible (at the independents are). Sometimes, when crude is rapidly falling or gaining, they actually lose money on the gasoline they sell. In the end, their margins on gasoline sales are very small.
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Old 10-19-2011, 01:07 PM   #39
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Originally Posted by banyon View Post
Ha.

More like some people think profit margin is the end of the analysis when it isn't.
What else matters?
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Old 10-19-2011, 01:10 PM   #40
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Quote:
Originally Posted by banyon View Post
As anti competitive practices go, the phenomenon of regional gas stations milking their customers a bit with a little local oligopoly actions, this probably doesn't make the top 100 worst practices on a list.

But to a small degree, I do think there's plenty of anecdotal evidence to think that this does go on (e.g., prices in Katrina, Iraq War I, etc.)
You are referring to gouging? If so, is this hypothetical an example of gouging?

A station owner realizes that he didn't buy enough gasoline last time, and will actually run out based on his present stock level. In order to reduce demand, he raises prices $.20/gallon compared to the station across the street.

Is that gouging?
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Old 10-19-2011, 01:14 PM   #41
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Originally Posted by Donger View Post
What else matters?
So, if I construct small Oil company XYZ, and let's say we have the following:

$5 million in revenue

$5 million in costs.

My salary as CEO is $1.5 million. Now, you tell me which line does this go on?

What's my profit margin? Is it worthwhile to keep doing business? (to me?)

This is just one example, of course. We can construct any number of scenarios with shell companies, offshoring of revenues and assets, option awards, etc.
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Old 10-19-2011, 01:15 PM   #42
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"The opposite happens when gas prices are dropping, leading to slower decreases as gas station operators hold off on lowering their prices in order to cover the earlier costs of buying more expensive gas. Here's a simplified version of what happens (excluding taxes and the cost of environmental regulations that also affect gas prices): Say you're a gas station owner who buys 10,000 gallons of regular unleaded gasoline -- a month's worth -- at Wednesday's wholesale price of $2.85 per gallon. Your bill comes to $28,500.

Imagine that you sell 9,000 gallons over the next three weeks, but then the price of oil drops, bringing the wholesale price for gas down 10 cents to $2.75 per gallon. You'll be able to buy your next 10,000 gallons at the lower price and cut your pump price by 10 cents per gallon as a result, but if you reduce your prices right away, you wouldn't cover the cost of the remaining 1,000 gallons of gasoline that you already bought at the higher price. Most likely, you'd wait until you'd sold those 1,000 gallons before cutting your price.

In this way, as retailers wait to cover the costs of the higher-priced gas still in their tanks, gas prices decline more slowly than they rise."



Me Kotter! Me no understand!

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Old 10-19-2011, 01:15 PM   #43
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Quote:
Originally Posted by banyon View Post
Ha.

More like some people think profit margin is the end of the analysis when it isn't.
There's no law, and nothing unethical, about making massive profits off massive operations. Return on Investment and Return on Assets are two of the most basic methods by which one calculates whether it's worthwhile to make an investment and how well a business is run.

If Exxon-Mobil with eleventy gazillion dollars invested and bebleepty Googleplex of assets generates a measly one billion in profits per year, then frankly it's a shitty company with shitty management and ought to be disbanded into it's presumably more profitable components.
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Old 10-19-2011, 01:17 PM   #44
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So the answer to the OP's question of why the gas prices don't fall at the same rate as they climb is simply "immediate increases are a vehicle for improved profits".

Once consumers started associating the price of a barrel of oil with the price of a gallon of gas, they also began to recognize how gas stations played the speculation to thier advantage.
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Old 10-19-2011, 01:18 PM   #45
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Quote:
Originally Posted by banyon View Post
Your post talks about prices moving up and down, but the focus here is on why the rate of price change (price acceleration) is different when dealing with the same product.
May 1, I buy 1000 widgets for 10 bucks a piece, I sell 5 to 600 per week. I must maintain at least 400 units when I am low, because customers like there to be inventory, EVERY time they come in, never a shortage.

Due to competition, the margin the widgets is 20%. Now a very intelligent, one of the most smartest politicians in my lifetime, comes in and drops a trillion dollars into the game, causing massive, and sudden commodity inflation that directly affects the price of my widgets raising their wholesale cost by 15%. With more increases foreseen on the horizon, my humble person must insure, that enough revenue is obtained from my current inventory to be able to purchase, the new, higher priced inventory.

I must IMMEDIATELY seek to obtain more revenue from the price of my widgets. If I don't, I will be forced to pay 11,500 dollars to replace the existing inventory as it sells for only 12000 dollars. I lose 1500 bucks, hard cold cash out of my pocket. That is 1500 bucks less, I have to spend at Union ran grocery stores. So, I raise the price of my widgets to 13.5 a unit, in order to maintain my spread. If I sell less, oh well, much less than the loss due to the whack on the margin, besides, my competitors are faced with the same problem, and will all come to the same conclusion at some point in time.

Now, in the course of time, the producers of widgets get exited that the market is now bringing them 11.5 bucks a widget, and they start adding lines to their factories to crank out more widgets. Even new business people jump in and start new widget factories, and the price comes back down to 10 bucks a widget.

Now I have an inventory that I paid 11500 for, and the price on new widgets will be only 10000 to replace the inventory. If I immediately sell my widgets at the lower price, I will have sold an inventory that cost me 11500 for only 12000, thus, only clearing 500 in profit. Do you, an intelligent man, see why someone, who needs to make a profit, on every dollar that they move through their business, might logically, and quite reasonably lower the prices, at a slower and more methodical RATE, than when they increased them?

For me, this isn't an academic exercise, I live it, day in and day out. It determines whether or not, I have sufficient revenue, to meet obligations like payroll, rent, advertising, etc. Oh, and hopefully I have enough left over to tip the cutie at the Chipotle.
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