Oil Prices Are Dropping…

October 4, 2011

Oil prices appear to be the lowest they have been over the last year:

I just wish gas prices would drop just as quickly. If my memory serves, when the price of oil surged earlier this year to $114 per barrel, gas prices surged to around $3.60 per gallon (around where I live anyway). Now oil prices are down to around $76 per barrel (a 33% drop). If gas prices decreased the same amount, we would be paying $2.40 per gallon instead of the $3.20 we are currently paying (an 11% drop).

10 responses to Oil Prices Are Dropping…

  1. I thought I read that the price of gas is not 100% correlated to the price of oil. Fixed costs like taxes and such will not change no matter the cost of oil.

    It would be nice to see the prices fall though as quickly as they rise, but that never happens!

  2. That is correct but they do seem to be correlated when prices are moving up…lol.

  3. It would be cool for someone to track them and create a chart. Hmmm…

  4. Prices don’t fall as fast because the market isn’t as efficient since consumers typically don’t shop around as much when prices are in their favor (falling). This behavior allows the gas stations to slowly reduce prices to reap extra profits resulting in the effect that gas prices rise faster than they fall.

    Gas is a commodity so if the price increases on the wholesale market, gas stations have to increase their prices immediately for new deliveries. However, when prices are falling, they aren’t forced to decrease prices as quickly.

    It has been tracked for decades and is a real phenomenon. It isn’t gouging, but just how the wholesale/retail market works for a commodity where wholesale pricing power is stronger when increasing than consumer power when decreasing.

  5. I agree that it’s not “gouging” – but only if you consider the market without considering the government involvement. Once you start to factor in government taxes, regulations, etc., I don’t think it resembles a “free market” very much anymore.

  6. Also, I heard on the news today that gas prices are driven off the ‘brent’ prices, which just fell below $100/barrel today. another thing to check is whether you are looking at spot prices or futures prices a few months out.

  7. Gasoline is in the $3.50 to $3.70 range here in northern Utah, so count your blessings. Although I saw $3.06 in Oklahoma City last week when we were there.

  8. In New Jersey a gas station is allowed to raise prices only once in a 24 hour period. During Hurricane Irene, 3 stations were caught raising prices several times over the weekend to take advantage of people who were forced to evacuate. I guess government regulations are a good thing sometimes. Why are the Republicans against a consumer protection agency? Do they believe that business has a right to cheat comsumers?

  9. How was raising prices cheating consumers, John?

  10. Jack) Raising prices substantially during a civil emergency (hurricane evacuation order, for example) is the definition of price gouging (a crime in some states).