Skip to comments.Prices will fall, not plummet, at the pumps
Posted on 01/20/2007 7:17:00 AM PST by Graybeard58
NEW YORK -- The headlines say oil prices have fallen 15 percent this year. Gas station receipts tell a different story -- the cost of filling 'er up has slipped from about $35 to $33. Big deal.
The cost will probably drop further, but drivers shouldn't hope for a big windfall at the pump: there's a lot more that goes into gasoline prices than the current cost of crude oil.
Besides taxes and the costs of refining, distributing and marketing, there are factors such as local competition among gas stations. Just as with other forms of retail, consumers see savings when one retailer lowers its price, and the others scramble to match it.
"If gasoline costs me a dollar a gallon, and my competition down the street is selling it for 89 cents, my customer doesn't care what I paid for it," said Richard Oneslager, president of Balmar Petroleum, which operates 14 gas stations in Colorado.
Crude oil prices have fallen from about $61 to $51 a barrel this year on the New York Mercantile Exchange, but the price of gasoline on the side of the road has declined more slowly. The average price for a gallon of regular is down about 13 cents from $2.33 on Jan. 1 to $2.20 on Friday, a day after crude briefly fell below $50.
A typical car holds 12 to 15 gallons, so if it's filled four times in a month, that's savings of less than $8 in a month -- not even enough for that daily cup of coffee.
Pump prices haven't plunged to $2 a gallon yet, which is where they were back in early 2005, when crude oil prices were also around $50 a barrel. The big difference was that, unlike now, crude oil wasn't coming off a record high of $78 a barrel just six months earlier.
Essentially, the recent price drop hasn't completely sunk in on the wholesale level, so gasoline retailers are still paying a lot for their product and won't lower prices until competition forces them to do so.
The Energy Department says the price of crude oil accounts for about half the retail price of gasoline. That means if crude oil is down 15 percent, pump prices should be down almost 8 percent.
But the time it takes for a drop in wholesale prices to fully affect retail prices is around 12 weeks, though most of the drop happens within the first two weeks.
"Retailers aren't making their price decisions on the price of crude oil," said John Eichenberger, vice president of government relations at the National Association of Convenience Stores. Instead, they focus on how much they paid for their current load of gasoline, and how much their supplier is telling them their next load will cost.
"We don't care about anything except what that tank the truck just brought in cost," Oneslager said.
A sharp rise in crude oil is another story. After crude spiked to record highs the past two summers, it didn't take much time for gasoline prices to follow suit. That's mainly because retailers got nervous that their next shipment of gasoline would cost a bundle, and also because they knew that summer demand is high and drivers could at least for a while pay inflated prices, albeit reluctantly.
The average gasoline retailers have to charge 13 cents per gallon more than they paid to break even, Eichenberg said, and mark it up even more to make a profit.
The Oil Price Information Service shows that in 2006, the average gross margin for retailers was 13.76 cents a gallon -- meaning profit was less than a cent per gallon. Because of credit card transaction fees, the credit card industry profited more from gasoline sales last year than gas stations did, Eichberger said.
If the Dems have their way, they'll go up.
If iy goes up, it's Bushes fault. If it goes down, what a wonderful job Pelosi is doing.
Won't be happy until Hugo has to wear a sign saying,
"will work for food!
Pure BS. Gas here in AZ has dropped about 12% since the summer highs.
Just paid $1.99 (1/20/07) a gallon here in Texas and just last week I 2.16, at least its moving in the right direction
We've seen $1.92 in Ohio and I haven't checked COSTCO yet, they're usually the cheapest.
Paid $1.95 a gallon this morning in Central New Jersey.
Oh Hush ... $2.58 at Costco on Thursday. Here in the socialist republic of say WA?
I guess I don't see the nuance between fall and plummet.
sounds like time for a tea party if ya know what I mean
Which probably reflects the local, state, and federal taxes per gallon.
$1.97 here in Huffman , Texas.
That didn't occur to me when I read the title (Still too early in the morning), thanks for pointing it out
Claire McCaskill: Just look at the gas prices. Look at the manipulation of the gas prices. I'm not sure anybody in Missouri believes these gas prices are going down for any other reason than that we're having an election. And I'm sure most people know they're going to go right back up after the election's over. That is because there are five companies that control all of the oil in this country.
Your new senator from Missouri, in a debate with Jim Talent before the election.
I hope those that voted for this dolt in Missouri are now happy.....Maybe she can give Patty Murry a run for money as the "Queen of Stupid" in D.C.
Well... cost is not a downward pressure on price. The only downward pressure on price is competition.
As cost to the supplier goes down, price will stay the same as long as people continue to pay that price. There's a certain inevitability though, that competitors will start shaving the price down in order to attract more customers.
Remember now, us happy workers in the People's Republic of Washington have to pay that additional $.12 per gallon gas tax foisted upon us by our Democrat AND Republican legislators in 2005. The price of our gas will never go down to what it was prior to the large price increase in crude oil. Unless, of course, the price of crude oil goes way down.
$1.89 in Louisville, KY today.
That's what we're being told NOW, now that the price of crude is falling. But when crude goes up and we get gouged at the pump, the price of crude is the controlling factor.
Lies on top of lies ...
Exactly various forms of government makes at least as much as the oil compays do in TAXES..
TAXES on one of the most important drivers of any economy.. ENERGY.. Taxes on energy that ADD NOTHING but only forces prices up.. They get you at the pump and get on the price of ANYTHING retailed..
Taxes on ENERGY(all forms of energy) is the most parasitical tax of all..
It should be outlawed and made a felony to make a law taxing energy in any form..
Maybe a hanging offence and a Constitutional ammendment..