Gas Prices: It's Only Rock and Roll...
Fuel Efficiency doesn’t have to be difficult

The Prices at the Pump Go Up and Down

Escalator_kazze I'd like to try something I was discussing with a colleague this morning.  With pump prices dropping significantly in the last few weeks and some large overnight price drops experienced in some larger markets, I'm going to pose the same questions that were asked/yelled when prices went up.  But instead of rise or go up, I'll simply substitute drop or dropped to reflect the current situation.

Here goes:

  • Why should gasoline prices drop just because crude oil prices dropped?
  • Why did gasoline prices drop today because crude oil prices dropped?  Doesn't it take 30-60 days for that crude to be refined?
  • If it's the same gasoline that was in the storage tank yesterday, how could you drop the price at the pump?
  • Why should Canadian pump prices also drop just because American wholesale prices dropped?

Gas prices go up and down for a number of reasons that have been answered here, here and here.  But by asking the same questions on the way down that were asked on the way up, it becomes obvious that the markets and local competition have a big influence over the price at the pump.  Problem is, those questions don't get asked.  Except when the price goes back up again.

In other words, if I understand that my pant size willl go up when I consume more doughnuts and hamburgers, shouldn't I also be able to figure out the path to a smaller pant size?   

Photo Credit: Kazze

Comments

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Matthew Nyers

I have NEVER seen the price of gas drop since I've been born. The price merely goes up less, in order for it to drop I believe we'd be paying under 30 cents/litre and not $1.18/litre. It's absolute bull that you try to feed us, the prices have not dropped they've just gone up less this week.

Taylor Warden

In the spirit of transparency, I want to identify myself as a Petro-Canada employee.


Matt – As a consumer I certainly understand your frustration - but perhaps I can add some perspective. There's an old rule of thumb that goes along the lines of "when something bad happens, that person will tell 10 of their friends about it. When something good happens, they might tell one or two friends, but only if it was really, really good & they happen to remember". Has this ever happened to you? It certainly has to me…….And the same is true with the news. How many articles do we read about negative news relative to the "feel good" stories? Without having official figures, I'd still bet that 10:1 is pretty accurate. It seems to be the way of our society – regardless of what topic is being covered. We get a lot of coverage on the negative front, but not so much on the positive side. Whether that’s good or bad is not my place to say – but I do think we can all benefit by being as informed as possible. With that in mind, I have two sources of information I’d like to share with you:

1) Many news-oriented radio stations such as AM 680 do a pretty good job of providing insight into what has become a daily topic; gas prices. In fact, almost every day these radio stations feature some sort of analysis or expert opinion. This analysis is largely based on the market forces Jon has described in many of his posts. If you would prefer to have up-to-the-minute prices in your area, there are two places I’d recommend looking: http://www.gasbuddy.com (Gasbuddy is updated by volunteers (e.g. you or I) that post the prices at stations in their neighbourhood) & http://www.petro-canada.ca/en/locations/4085.aspx

2) Interested in what gas prices have done over the last month? 3 months? 6 months? At the beginning of September Torontonians were paying about $1.302 / L, but as of yesterday, the average pump price was hovering around $1.105 / L. To take a look at other cities, or other time frames, go to http://www.torontogasprices.com/retail_price_chart.aspx

The best thing we can do as consumers is be informed – so I hope these links have helped.

On a note to Jon, keep doing what you’re doing. Discussion is good, even if it does evoke strong emotions. I’m proud that Petro-Canada is leading the way in the public, two-way discussion in Canada.

Ian Caldwell

The price of crude dropped by nearly $3.00 yesterday, yet this morning the price of gas had risen 8 cents a liter or 7%. That works out to 31 cents a US gallon yet prices in the US dropped by 1 cent a gallon. The oil company's are crooks. Legislation should be enacted that requires oil company's to divest their retail operation. This will give us competition rather than be forced to pay whatever this crooked Canadian oil cartel wants.

Ian Caldwell

Oil prices drop by $4.00 a barrel today. How much of a gasoline price increase does that translate into?

Crude oil has dropped by 8% in the last two days yet the price of gasoline goes up. Time for legislation to outlaw retail gasoline outlets by refiners.

Jon Hamilton

Ian

There are always many factors at work. Rather than have me reiterate what I've said in the past, Pat Brethour did a pretty good job explaining things in today's Globe & Mail. You may disagree with him too, but he's spent a lot of time working to understand how gas prices work.

http://www.theglobeandmail.com/servlet/story/RTGAM.20081002.wbrethour1003/BNStory/energy/home

Cheers,
Jon

Ian Caldwell

There are always many factors at work.
Posted by: Jon Hamilton | October 03, 2008 at 01:41 PM

When the price of crude oil goes down retail prices should follow. When the price of crude goes up retail prices should follow. It's actually quite simple. Where I live the price goes up EVERY Thursday regardless of what the price of crude is doing. And the company that starts the price increases is ALWAYS Petro-Canada.

When hurricane Ike hit Texas the price of gasoline where I live went from $1.269 to $1.499 a liter. That works out to almost 90 cents a US gallon. Yet 25 miles across the border in the US the price went up about 5 cents a gallon. Explain that.

Jon Hamilton

Ian,

Pump prices have gone down in the last few weeks and the last few days. Just looking at crude oil doesn't tell the whole story. Wholesale prices have come down too, but what's prevented a larger drop in prices is the drop in the Canadian dollar. Why is that important? Commodities are set in US dollars. That worked to our advantage most of last year as the high Cdn dollar sheltered us from some of the increases seen in the US. Now, the dropping Cdn dollar is reducing the buying power of anyone doing business in Canada - like us. According to Reuters, the Cdn dollar this week has experienced its biggest drop in almost 40 years:

The Canadian dollar was heading toward its worst week in 38 years against the U.S. dollar on Friday as tight liquidity put a premium on the greenback and nervous investors awaited a vote in U.S. House of Representatives on a revised rescue plan for the financial sector.

At 10:14 a.m. (1414 GMT), the Canadian dollar was at C$1.0829 to the U.S. dollar, or 92.34 cents, down from C$1.0799 to the U.S. dollar, or 92.60 U.S. cents, at Thursday's close.

The currency is down 4.6 percent so far this week, its biggest weekly plunge since at least 1970, according to Thomson Reuters data. It is sitting at its weakest point since Aug. 16, 2007.

http://www.reuters.com/article/usDollarRpt/idUSN0333551820081003

Ray

Jon, it seems clear consumers are misled and one cannot come to conclusions trying to compare the price at the pump and the price of the barrel. Too many market factors are coming into play.

That said, if we take a step back and look at the big oil companies' profits, they have been climbing continuously over the past years. For example, Exxon made a record profit of almost $12 billon in Q2-2008 -the largest profit for any company ever in fact.

Some argue that actually some of the profits from big oil companies goes toward R&D and search and exploration (for which the cost has gone up since we have past peak oil).

Financial analysts looking at it more closely have found out that it's not so. Exxon charged off $1.1 billion in dry-hole exploration as a cost before calculating profits, meaning that these funds didn't come out of the billions in profit.

So if we forget about market fluctuations, hurricanes, speculation and so on and so forth, it really does feel that big oil companies are taking advantage.

I know some companies have started to invest significantly in renewable sources of energy, such as Shell. But I think it's more the exception and most are just taking advantage of the little guy because they can, they are big and invest massively in lobbying.
Just my two cents.

Ian Caldwell

Oil prices hit their lowest level in 12 months today. Crude was down to $80.34 a drop of $6.00 a barrel. That's a 7% drop in one day. Yet this morning Petro-Canada increased the price of gasoline by 10 cents a liter, which is a 9% increase. Yet again we see the Canadian oil cartel led by Petro-Canada gouging Canadians at the pump. Gouge, gouge, gouge. I was going to vote Conservative but now I'll be voting NDP so that legislation gets enacted that forces the refiners to sell off their retail operations and end the gouging of Canadian consumers.

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