Economists, please help me understand this oil issue. Whats the deal?

Question

Okay, first the cost of a barrel of oil was going up and gas prices were going up because of it. Everyone was in fear at the rising cost of oil and it was generally accepted as a bad thing. Now I am reading articles about falling oil prices and how horrible it is...yet gas prices still stay high. How can it be that rising oil prices and falling oil prices are both bad and why is it that gas becomes more expensive as oil becomes more expensive, but gas doesn't become less expensive as oil becomes less expensive? Is this all just a bunch of c**p?

Answer 1

It's corrupt criminal manipulation for greed .

Answer 2

Gasoline prices will fall as oil falls. But the mechanism which causes prices at the pump to decline is based on competition.

Here is the deal. When oil rises, the cost of producing gasoline rises because the base material (Oil) has gone up. Same theory behind why meat costs more when animal feed costs go up.

When oil declines, the base cost of producing gasoline declines, but the price at the pump wont decline until competition forces the hand of the stations. The reason is because their profit margins increase as oil declines and they can still charge the $4/gal price tag. But when the station down the street wants to boost business, it drops the price to $3.95. That will pull business away from the owner charging $4/gal. As such, that owner will drop his prices to $3.90/gal to get that business back. As so on goes the downward price spiral. But it takes time for the competition to pull prices down because they have an incentive to keep prices high for as long as possible because their profits are boosted when the base material of Oil declines.

Does that make sense?  

Answer 3

Bush, current politics, and greed of corporation and government working together