I have never, ever understood this. Gas is for the most part is a simple commodity. Sure, some prefer a premium brand (like Shell) to a cheaper one (like ARCO), but I can’t for the life of me figure out why there is such a wide variance even within a single mile or two of a city (and amongst the same brand!) I would think that supply and demand would reign supreme here. It’s the same stuff.
You get that one gas station that charges $0.10 less than all the others in the area and the lines are out to the street.
So where are supply and demand?
In: 38
TL:DR;
Gas comes from oil.
Oil is sold on a global market.
The global market is fucking whack.
People are greedy.
Gas / petrol / diesel is a crude oil derivative, hence if oil prices go up, the cost to make gas goes up. Oil is very definately a global market, and while it is a supply and demand price, you have to remember that the price on the global market follows global factors; this includes supply which is intentionally manipulated / maintained by OPEC to keep the price relatively stable (artificially high), by stopping one country or even company producing a shit load of oil and dumping it on to the global market to force the price down to screw someone else over.
So when Russia fucked around with Ukraine, no one wanted to buy Russian oil, so the supply effectively tanked with demand stable the price went up. Various countries having been going to every other OPEC nation begging them to increase pre-agreed supply to bring the price back down. America is so desperate they’ve even backed off on Venezuela tariffs.
So even if Texas opens the oil taps for American refineries supplying American pumps, the price of the crude oil is still set on global markets.
Don’t rule out simple profiteering. People can get away with charging whatever they want for fuel because it’s basically an essential at this point, what are people going to do, not go to work? So when global markets panic, every gas company puts up pump prices and blames global markets; despite the fact the gas in your car now was probably bought a few months ago. While the difference filters through companies laugh all the way to the bank.
Supply and demand is a complicated business.
Demand side:
– Yesterday’s prices affect today’s demand, and today’s affect tomorrow’s. How much business is repeat, how much is passing through? How much do people shop around vs go with what’s usually cheapest?
– Location, location, location. $1 on a tank isn’t a lot if you have to spend time getting there and back. Customers have different routes and different time sensitivities.
– Imperfect information – and getting information costs consumers (in time and gas). Sure, you can undercut your competitor, but if they don’t know about it, you don’t benefit but do lose out.
– Brand loyalty, habit, and a preference for buying gas at the same place all affect demand.
Supply side:
– They don’t just sell gas, they also sell other stuff, usually with higher margin. So they might make more money by not making any money on the gas.
– The more volume, the less they need to charge to make up the fixed costs.
– Changing prices has a cost and a time lag. Deciding whether to cut prices or not is an activity and doesn’t happen constantly.
– Current price changes affect future prices. If you cut price, will your competitor cut too? If so, you only make both of you worse off. But that makes them worse off. Maybe you can eventually make them stop undercutting you because it’s shit for both of you.
– Different costs of gas. Even if they’re paying the same wholesale price, the delivery costs companies face might be different.
– Different structures. A national entity might be setting prices regionally rather than for that single mile.
This is all part of supply and demand, and there’s going to be a ton of other reasons too.
It’s not just a case of all the reasons one gas station may want to earn more or less profit at one point or another. They have vast reservoirs of fuel that are filled for them from their supplier at a price the day (and hour, and. minute) it was either ordered or delivered. No one makes huge margins on their fuel sales, so when their price per gallon/litre changes up or down, they’re still sitting on fuel they paid a different price for. The next stop over may have bought it cheaper, and will be selling it cheaper now. But they refilled earlier last week, so were probably more expensive for a little while last week.
Now you might think good, big business would just take the losses and round them out against the extra profits they make another time. But (a) prices don’t just move around a long-term median – sell it all this week for a bit of a loss, and prices may well stay low for the next year, either you spend all that time making a loss, or you need to adjust prices retroactively. Meanwhile, those motorists who like to make little savings will be buying from whoever is taking their losses this week, and the whole industry will be stations making a loss or breaking even, with less and less excess available to bring their average up to a profit.
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