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OIL: Why aren’t gas prices dropping along with oil’s?

Letter by Donovan D. Wolters, Lakebay on Aug. 10, 2011 at 2:20 pm with 33 Comments »
August 10, 2011 2:20 pm

Interesting, isn’t it? As soon as the price of a barrel of oil rises, gasoline prices follow right along with it.

Oil is now down to $81 a barrel, but gas prices? Well rest assured that after Big Oil has locked in its profits, prices at the pump will certainly begin their “trickle down” effect.

Leave a comment Comments → 33
  1. scott0962 says:

    Oil prices don’t go down right away because the demand for oil products means they can still sell it easily at the higher price.

  2. puyallupmutt says:

    Most of the cost is tax. If the price of oil “tanked” (like the humor?) no doubt the leeches in Olympia would raise the tax levels again on the basis of you need to continue the pain and they want your money.

    Either way, you wont reap any reward.

    Dont blame big oil, blame big Chris Gregoire for your pain.

  3. Most of the cost is tax.

    That doesn’t make sense in relation to the letter. While WA gas tax at 37.5/gallon is the highest in the nation, the fact that gas has not gone in direct proportion to the amount the cost of oil has gone down has nothing to do with the tax.


    and scott – you cite inventory as a reason for higher prices being carried forward in spite of lower costs yet the prices go up immediately when costs go up and they have all that cheaper inventory left to sell……

  4. concernedtacoma7 says:

    The prices do not fall right away because the price is based on what their last shipment cost. The price is raised based on their need to pay for a future shipment.

    Put yourself in the position of the pump owner. If you paid $100 a barrel and the spot price of oil falls, it still cost you $100 a barrel for what you have in the tank.

  5. From The Association for Convenience and Petrolium Retailing…

    When wholesale price is increasing, competition often prevents the retailer from passing the higher costs to the consumer immediately, resulting in a lower retail markup and reducing the retailer’s profitability. However, once wholesale prices stabalize or begin to decline, competition often enables retailers to maintain retail prices for a while, thereby increasing their markup and recovering the profits lost when wholesale prices were rising. Over time, the average retail markup relatively stable.

    A gasoline retailer (your local station) typically seeks to establish a retail price based upon the cost of replacing the gasoline that is currently at the retail location–not the cost of the product itself. Basing prices on “replacement costs” is especially critical when wholesale prices fluctuate frequently. A retailer must generate sufficient cash from its current retail sales to purchase its next delivery of gasoline; otherwise, the retailer would constantly be using debt to finance wholesale gasoline purchases.

    It goes on to say that wholesale prices are a commodity and sold on the open market and prices can change by the minute. Purchase at the wrong moment and it will cost both the wholesaler and retailer.

  6. “puyallupmutt says:
    August 10, 2011 at 3:02 pm
    Most of the cost is tax.



    Gas tax in Washington is 37.5 cents

  7. aislander says:

    It IS accurate to say that government profits more from a gallon of gasoline than either the oil companies or the retailer. And that’s just wrong…

  8. bobcat1a says:

    Oil goes up a few dollars, gas prices go up immediately. Oil goes down a few dollars, gas prices don’t move. Make whatever industry serving excuses you want, it’s scamming just like the airlines did when the federal taxes went away and some of the companies kept the money.
    But don’t let that change your mind about how much the big corporations are trying to “take care” of us. Sort of like Al Capone had his henchmen “take care ” of his enemies.

  9. concernedtacoma7 says:

    Great job Kard. BB did not post that exact link 2+hours earlier.

  10. theglovesRoff says:

    Maybe someone needs to read for comprehension that someone always accuses others of not doing.


  11. The comment that “most of the cost is tax” was so ignorant that it will take at least twice to set in.

    The old advertising adage is 7 impressions to make something stick.

    Of course, I didn’t read BB’s comment until after I posted mine.

  12. “aislander says:
    August 10, 2011 at 6:49 pm
    It IS accurate to say that government profits more from a gallon of gasoline than either the oil companies or the retailer. And that’s just wrong… ”

    You can say your gluteous maximus is filet mignon,but if you take a bite of it, you’ll find that is false also.

    Show us proof that oil companies only profit less that 37.5 cents per gallon.

  13. glover….did you leave Saduj home tonight?

  14. Sroldguy says:

    There is a link in the article right after this quote that explains gas pricing a little more.

    “…For every gallon of gasoline and other products ExxonMobil refined and sold in the U.S. in the second quarter, we earned about 8 cents, far less than the 40 to 60 cents per gallon collected by the federal and state governments in gasoline taxes…”

    Roughly breaks out cost of a gallon of gas in percent.

  15. David1964 says:

    “It IS accurate to say that government profits more from a gallon of gasoline than either the oil companies or the retailer. And that’s just wrong… ”

    Even if it’s true, the taxes go towards taking care of our roads. Oh wait….maybe our STATE INCOME TAX covers that, like in other states with a lower tax rate on gasoliine???

  16. Money magazine in 2008 had a good article showing who profits on oil prices, and it is not just Exxon that makes a profit. The average cost to produce a barrel of crude is $24 (most oil in the world costs about $1 per barrel of crude to produce. The higher end (which causes the averages to go way up) are the added costs of exploratory efforts, much of it done by small companies, who are making a profit when they sell the producing leases to the larger companies.

    Then we have the profits of the traders, crude transporation companies, storage companies, refiners, pipe line and other transports and finally the retailers.

    The amount quoted by Exxon works out to be about 8%-10% profit after all expenses are taken, including taxes. Small businesses with low volume need to make about 10%-15% to survive, but huge corporations can make 8%-10% and provide shareholders a great reward.

    According to the article, oil exploration companies and refiners and the big oil companies pay few taxes in the USA, unlike the VAT taxes in Europe. In fact, most get government subsidies. Consumers pay most of the taxes on gas at the pump.

  17. concernedtacoma7 says:

    Post a link instead of implying that you remember verbatim a 3 year old article.

    I love the small vs big business part and how we should be more like Europe. You go pay 5% at a mom and pop station to assist their margins, I’ll go the exxon

  18. concernedtacoma7, remember print? Go to a library, or tell me where to send it, and I’ll make you a copy. If its on line, then google it. Do you need directions on how to do that?

  19. “concernedtacoma7 says:
    August 11, 2011 at 12:59 am
    You go pay 5% at a mom and pop station to assist their margins, I’ll go the exxon

    Another Conservate for small business, huh?

  20. Sroldguy……do you ask the fox where the hen house is??????

    Redstate??? Exxonperspectives????

  21. Simple solution to this hand wringing heartache. You dont like the price of gasoline……Dont buy it!

    I laugh myself silly when I go fill up the tanks at a large discount big box store. People will line up 5 cars deep, waste nearly 30 minutes of their day, impatiently pounding the steering wheel and going into massive conniption fits if someone gets ahead of them, just so they can save .25 cents on a gallon of gas! — That’s about $3.00 on a tankful for my vehicle.–

    Then when they get done filling their tank, usually with a cell phone stuck to their heads, they speed out of the rack, sometimes taking the filler hose with them, or carelessly leaving a puddle of gas on the ground, just to speed over to a little shack in the parking lot to pay $6.00 for a hot water filtered through coffee beans!

    The brain of the modern American should be put in a glass jar and preserved for future archaeologists!

  22. scott0962 says:

    No beer boy, I did not cite inventory, I was referring to demand. The demand for oil means that price increases do not necessarily decrease demand for the product, that means prices can go up and the sellers can still find buyers willing to pay the higher price. The economy has to take a real jolt for oil buyers to stop buying and force the price down. This is good news for oil speculators, bad news for consumers.

  23. scott…..are you saying that the reason prices haven’t dropped in spite of costs dropping is that demand has somehow risen in direct correlation to the price of supply falling?

    Or…..what I really think you are saying…..is that Oil companies used the rise of oil costs to rationalize an increase in prices at the pump and, now that we are conditioned to paying a higher price, they are enjoying the windfall of lower costs without passing it on to the consumers.

    That seems plausible……it also gives lie to the “Drill Baby Drill” folks who claim that our gas prices will plummet if we just let the oil companies drill anywhere they want without any regulations.

  24. concernedtacoma7, I took a look at my post that you took exception to (because of no link to a print article) to see why you thought I was making a value statement about being more like Europe or saying we should shop at mom and pop stores for gas. I couldn’t find it. It was just a factual analysis in response to Exxon’s statement in 2008 that we pay more in taxes than they realize in profits on a gallon of gas, which is true.

    VAT’s in some country are only applied at the retail end, and it becomes much like a slaes tax. In other countries, VAT is added at each step of the process. It’s all paid by the consumer at the end. No value statement in that about the US becoming more like Europe.

    As for the info on profits of small vs large companies, the writer put that in to show that while 8-10% is a good return on financial investment, it is not a high percentage of profit when looked at in terms of what most business receive. However, huge volume makes up for it.

    I will add this, which are my own thoughts. Even though my extended family profits a lot off oil and gas, and I profit a little, too, I would like to see more government investment in alternative energy sources and less subsidies to the oil industry. I would also like both D’s and R’s to respect small businesses, which are the real engine of our economy.

    btw, mom and pop gas stations or franchise stations generally charge the local competitive rate for gasoline. They make most of their profit off cigarettes and sundry supplies and very little off gasoline.

  25. Sroldguy says:

    Quick! Everyone hop in their car and go fill up at the Shell station by the Casino in Fife. Last night it was $3.53 and someone updated this morning that it was $3.50.
    Now if I only had a truck that got 12 miles per gallon and had large dual tanks I could make out like a bandit.

  26. @Sroldguy!! HAAAA!! I guarantee there will be a bunch of people driving in from Centralia, Bremerton, and CleElum, just to do that! :D

    I get a kick out of the number of people who will spend 5 bucks in gas to drive to a place that sells gas a dime cheaper than the one down the street!

    For some reason I think most of the American public failed miserably at Economics 101! :D

  27. Sroldguy says:

    Wrong! They will not drive that far for cheap gas.
    They will drive that far for the casino.
    Then they plan on filling up at the station before they leave using all the money they have won…
    You have to be a real gambler to understand the logic…

  28. aislander says:

    Here ya go, KARD:


    Is 2 cents less than 37.5 cents? Apparently my ass IS filet mignon…

  29. aislander says:

    I should have read my citation more closely. The question has become: is 2 cents less than 55.9 cents? I DO powder my butt with horseradish. Is that what YOU use for a whole-body powder? Cheaper cut, though…

  30. Can someone direct me to the nearest Mom & Pop Gas Station?

  31. bobcat1a says:

    Gas will be expensive when it costs more than bottled water. And morons are buying that crap by the case when it comes out of our tap for next to nothing.

  32. LarryFine says:

    Ask O’Bama Don.

  33. As long as there is a demand for any product and the Public will buy that product at what ever price,then the sellers will keep on making that product available.The only way for the public to fight back is to refuse to buy the overpriced products.Sadly there are those that have no choice in the matter of what to purchase in order to continue to maintain a decent standard of living so they are stuck with higher prices for those products.

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