Why does gasoline go up at pump when already purchased by station

[cbc58]

So gas prices jumped about 10+ cents because of the oil spill in the gulf... but the gas at the station is already in their holding tanks. I understand if gas in the future goes up because of shortages or demand... but there is no reason for it to jump when it's already paid for and delivered.

I have really never understood this phenomena... is it just pure greed on the part of the station or is there another reason behind it?

 

[noxagol]

The money to buy the gas in the future has to come from now. Gas in the future will cost more, so gas now costs more.

And, see this article, http://www.lewrockwell.com/spl2/in-defense-of-price-gouging.html

 

[cbc58]

i don't buy that argument. gas isn't scarce and stations usually don't pay cash for their deliveries of gas - it's on terms like any other business. when gas gets scarce THEN they can raise prices because of supply and demand.

 

[Jordan]

Its a matter of the supply chain. Let's say I have gas coming in three weeks from now, and I'm buying at today's price. If it rises between purchase and delivery on the open exchange, why wouldn't I just sell it there?

If the gas tax is say $.55, and I buy at $2.33, and when it is delivered wholesale gas rises to $2.43, I can either resell it on the exchange for $2.43 and net $.10 per gallon or sell it to consumers at $2.98 and make the same.

So, why don't they pass those savings on? I guess the average joe-blow customer filling up their tank isn't worth $.10 per purchased gallon. Otherwise we'd see stations pass on the savings to bring in foot traffic.

 

[enjerth]

Same reason coin stores charge more/less for coins they're holding than they paid for them. They sell at current market price + margin. What they sell today they have to replace to keep stock, at today's price.

It's the only consistent way of pricing that doesn't risk huge losses. If they charged what they paid for the gas, they'd be constantly losing money when prices continually go up, only able to make gains when prices come down.

 

[Krugerrand]

The same thing generally works in reverse too if they buy now at a high price and the price goes down. Once neighboring stations lower their price, the store has no choice but to sell for a loss. They will sell nothing if they keep the price high,

 

[dannno]

The prices are completely based on the surrounding competition, not related to costs.. though in a macro sense they are related to cost, because the stations collectively have to make money, individual stations do not price based on their cost.

 

[ARealConservative]

So gas prices jumped about 10+ cents because of the oil spill in the gulf... but the gas at the station is already in their holding tanks. I understand if gas in the future goes up because of shortages or demand... but there is no reason for it to jump when it's already paid for and delivered.

I have really never understood this phenomena... is it just pure greed on the part of the station or is there another reason behind it?

why do coin shops increase the price of gold and silver when they already bought it?

same reason. replacement.

 

[dean.engelhardt]

Free market solution is it is none of my business. Station should be allowed to charge what they want and consumers decide where they want to buy.

 

[TastyWheat]

Gas stations make little, if any money from gas purchases. They're hoping you'll come inside and pay for their overpriced groceries.

 

[Mahkato]

Why does the value of your mutual fund holdings go up (or down) after you purchased it?

 

[emazur]

If you buy an ounce of gold today for $1000 and tomorrow the market price doubles so that it's worth $2000, would you sell your ounce @ $1100 for a "fair profit" of only $100 or would you try to maximize your profit and net 10 times as much? Nearly every individual would try to maximize their profit based on market price, so we shouldn't be surprised if oil companies/gas stations try to do the same.

 

[Zeeder]

Now.......imagine hyperinflation or just really high inflation. That's why businesses get destroyed. If you don't charge enough for what you have now. You can't afford to buy more. And suddenly you have food shortages. etc.......

 

[cbc58]

oil went down but gas prices didn't.

i think oil is such a necessity to our economy that it should be regulated. i'm sure others will disagree with me and say that in a capitalist society one should be able to make money because of supply and demand.. but the whole things rigged. rigged i say. either that or investors need to be required to take physical delivery of oil. when you've got oil filled tankers sitting in the ocean because of lack of demand... and the prices go up to the consumer... something is not right.

 

[Pizzo]

The same thing generally works in reverse too if they buy now at a high price and the price goes down. Once neighboring stations lower their price, the store has no choice but to sell for a loss. They will sell nothing if they keep the price high,

This is correct. Just as they raise prices and make more of a profit as their cost goes up, they lower prices and take losses per gallon at times when prices go down.

 

[Matt Collins]

They have to be able to refill the tank if they anticipate an increase in prices.

 

[krazy kaju]

Supply and demand. The gasoline station has a limited supply of gasoline, but demand increases. In order to slow sales, the gasoline station increases prices. The gasoline station then uses the additional profits to purchase more gasoline from the gasoline distributors in order to meet the new demand.

 

[krazy kaju]

i think oil is such a necessity to our economy that it should be regulated. i'm sure others will disagree with me and say that in a capitalist society one should be able to make money because of supply and demand.. but the whole things rigged. rigged i say. either that or investors need to be required to take physical delivery of oil. when you've got oil filled tankers sitting in the ocean because of lack of demand... and the prices go up to the consumer... something is not right.

How would regulation fix any problems? And are there really "oil filled tankers sitting in the ocean because of lack of demand" or is that something you made up just to make a point? Asking because it sounds like bullshit.

 

[WaltM]

It you're talking about the 10 cents increase from the advertised price ; I believe it's because you pay with a credit card, pay with cash and it should be what the sign says.

As for why stations change their price, there are various reasons. But the short answer is, BECAUSE THEY CAN.

 

[cbc58]

26 mile long glut of oil tankers.

http://globaleconomicanalysis.blogspot.com/2009/12/26-mile-long-glut-of-idle-oil-tankers.html