Why do most goods have relatively stable prices, while gasoline fluctuates on a daily basis?
In: Economics
Because most gas stations operate on incredibly small profit margins for the sale of their fuel, an average of 1.7 percent. This is due to the fundamental nature of the fuel market. Gasoline is a commodity, whose composition is strictly regulated by the government, so one can’t market the difference in the *quality* of your fuel (not that this stops Chevron from trying). The only basis on which gas stations can compete is location and price, and in most markets, there’s more than enough nearby competition to drive down prices to the bare minimum required to stay in business.
So, where do Gas stations make their money? In the little convenience stores attached to them. The margin on that Gatorade you’re buying is somewhere around 50%. In effect, the gas is sold at or below market cost to attract customers to the other services the gas station offers, like a Door-buster deal on Black Friday, or a printer or game console.
One of the key factors not previously mentioned is that gas stations run on super thin margins. While a carrot is typically marked up by 100%, so a 5% change in cost is no big deal for the reseller, gasoline is marked up by 5-10%, so a 5% change in cost might wipe out the profit altogether.
Also, gas stations absolutely change prices through the day based on demand. The price of gas absolutely increases during rush hour. When your margins are razor thin, you need to use every possible advantage.
Source: investigated buying a gas station.
This is obviously not true of many stations, but I know the manager of one next to a Walmart Supercenter. Because of the enormous volume of gas he pumps, he gets a tanker every day; sometimes two. He may be changing his prices to match each truck.
on most other good you are mostly confident that the supply remains stable as long as you know the producers are providing.
for gas the issue is that there a lot less stability in the supply of Oil vs the demand for fuel and some of the locations that have reserves might have political issues that could cut off access to them. this makes trading for Oil more volatile of a market.
There are many factors to consider here – is it producable, is it flammable or perishable, storage (size) costs to selling cost ratio, shipping (weight, flammability, etc) costs to selling cost ratio, demand and supply ratio, etc.
Gasoline isn’t producable, we can only extract what earth already has. It is flammable, which means it has a risk factor. During quarantine period, demand was 0 so the prices were in negative (they were paying us, to take the barrels) which means it was more expensive for them to store it than to simply give it away (storage cost to selling cost ratio). If a ship full of gasoline sinks, ship gone, gasoline gone, underwater life gone, too much loss, lack of supply, increase in price.
There are many other factors, for eg sometimes industries keep goods hidden (decreasing the supply) so that prices will rise and then they can sell the hidden stock at increased price. You can check these factors for any type of goods and figure how they work.
PS: I’m not in the profession so please ignore if I’m using wrong words. I’m just putting it in layman’s terms.
Mostly because gasstations decided it’s worth the effort to inform people of daily price changes.
Fuel supply and demand change a lot, so with a constant price it would have to be pretty high to prevent the risk of selling at a loss for gasstations.
With other goods supply and demand are very stable, and the effort to inform people about the daily price outweights the gains for the seller. (Imagine a grocery store would keep up some digital board with all the current daily vegetable rates instead of printing a pricetag)
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