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Why Gasoline Follows Oil Up But Not Down
By JLP | January 18, 2007
If you’re anything like me, you have probably asked yourself this question:
“Why does the price of gasoline go up at the mere mention of an increase in the price of oil but then takes its time coming back down after the price of oil drops?”
Well, this article, Why Gasoline Follows Oil up But Not Down, I found last week tries to answer that question.
According to the article, the reason seems to be simple economics.
The service stations are still selling the same amount of gasoline when wholesale prices fall, said Kloza, “so there’s no reason to drop.”
“Human nature being what it is, [service stations] typically react [to a spike in oil prices] by pushing prices higher, even before they replace their inventories,” said Geoff Sundstrom, spokesman for the motorist organization AAA.
“And [again] human nature being what it is, unless other stations bring their prices down, he’s going to be very reluctant to bring down his.”
This seems to be typical of practically everything. I remember when the price of milk jumped $1.00 per gallon in one day. There was some excuse for the price increase but I don’t remember what it was. All I know is that nearly two years later I’m still paying that same high price. The same thing can be said about orange juice. The recent cold weather in California has caused orange juice prices to rise (they were already high to begin with). I’m not expecting them to drop anytime soon.
Topics: Budgeting |