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.
At last, a grain of truth. Downward pressure on retail price is resisted, while upward pressure is encouraged, even manufactured.
Sadly, I doubt that Claire McCaskill can come anywhere near Patty "Osama" Murray for the title of dumbest Senator. The only person who could challenge Patty for that title is Barbara Boxer.
Having said that, I still don't understand how Missouri could elect a twit like Claire McCaskill over Jim Talent. From up here in the Northwest, Jim Talent seemed like a pretty decent, articulate and effective senator. I can understand why George Allen in Virginia lost, since he couldn't keep his foot out of his mouth. However, Talent seemed like a good man and it is a shame that he lost.
It rises alot quicker then it falls and we all know why hmmmmm
Filled up at Costco yesterday for $2.05/gal here in Crook County.
The author is no Galileo.
What is your agenda?
Maybe this is the reason?
Monday June 26, 6:42 AM
Iraq's oil production back above 2.5 million barrels a day: minister
Iraq's oil production is now over 2.5 million barrels a day, a record since the fall of Saddam Hussein, the country's oil minister said.
Oil Minister Hussein Shahristani said on US television that Iraq hoped to be producing 4.3 million barrels by 2010 and to be challenging Saudi Arabia as the world's largest producer by 2015.
Production was about 2.5 million dollars a day when President Saddam Hussein was deposed by US-led forces in 2003. It then collapsed to virtually nothing and has been slow to rebuild because of insurgent attacks and other problems.
In an interview with CNN television, Shahristani emphasized that only one month and three days after the Iraqi government took office "we have been able to break a record".
"Today's oil production was in excess of 2.5 million barrel a day. And that's a record since the fall of Saddam's regime in April 2003," he told CNN's "Late Edition" programme.
He said Iraq hoped to increase production to 2.6-2.7 million barrels by the end of the year, to 4.3 million barrels by 2010, which would be a new all-time record for Iraq. The minister said Iraq's highest oil production was 3.5 million barrels a day.
"Our ultimate aim is to reach more than six million barrels a day, hopefully by 2012.
"And needless to say, Iraq holds one of the largest reserves of oil and gas in the world, and we are determined to prove it has the largest world reserve."
The oil minister said that by 2015, Iraq could challenge Saudi Arabia as the world's largest oil producer.
Maybe this is why Iran wants to stop it?
Pray for W and the 13 in the Copter
Almost fainted when I got 1.899 in GA yesterday. :)
Not hard to find. Not even hard to understand.
I repeat. What is your agenda in spreading blatant lies?
yeah...around 1.75 in the Spartanburg/Greenville SC area
I ask what gas station are you affiliated with?
I paid 2.01 last night in northern Morris County, but it was at a no-name kinda place.
Why are you trying to change the subject?
Are you worried that your agenda is being exposed?
Why are you spreading blatant lies?
Ok my statement still stands
Um, that chart is pretty hard to argue, even if he did work for Exon. Now why don't you show some proof of gouging or apologize? You do understand capitalism and that old supply/demand model?
Pray for W and Our Troops
The Saudis are behind this. They feel threatened by Iran. (Shia Vs. Sunni) This will seriously hurt Iran very much. Iran is under heavy Sanctions and they operate their country with Oil revenues pretty much exclusively.
Notice all the latest turmoil over the dissatisfaction the Iranian government is having over their President? The plan seems to be working and I'm all for it.
this should keep inflationary pressures down