Why is it that when oil prices rise, gas prices do too, but when oil drops, gas prices seem to stay high?

Question

I don't understand how gas prices can seemingly jump from day to day with rising oil prices, but they never go down that quickly if at all when oil prices drop. What gives?

Answer 1

The first answerer is right.  Just because the price of an input drops, doesn't mean the price will lower.  This makes you understand that demand is a much more driving force to the price of gasoline than supply at this moment.  Makes you wonder about the purposed drilling in America.  Will it really  lower prices?

Answer 2

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Answer 3

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Answer 4

this is because there are other factors to consider such as costs of labor and other production inputs.  Oil is an input for gasoline so if its price rises then cost/unit production increases which leads for the supply of oil to shift to the left (decrease, which may be slight or not) which causes the the equilibrium price to go up.  Then demand is increasing because of worldwide needs for booming economies like India and China and our of course which shifts the demand curve to the right (increase) and leads to yet another price increase.  That explains why increase in oil prices have a really big effect on prices going up.  If demand increased at a slower pace or supply decreased a lot less then this wouldn't be the case.

Now, when oil prices go down, then the supply curve shifts to the right but not as much because usually drops in oil prices are minimal.    Yet, the demand curve still does the same because of the expectations of the people in newly emerging economies, causing the increase in demand to outweight supply and prices go up but no as much as when supply decreased.  Plus prices are sticky.  For example, anyone will always take a pay raise, but even if it was explained to you that a pay cut is necessary to keep costs low, you wouldn't take it.  So when normal market forces would lower the price of oil, cartels like OPEC collude to keep quantities at certain levels in order keep oil prices from dropping too much, especially since they play a big factor on the supply side.

Treat the two scenarios separately.  You will see it's a demand side problem unless supply can be greatly increased which won't happen because oil prices are high elsewhere which means our drilling companies won't have incentive to sell just domestically(yup companies want to make a profit, oh no not evil profits!!). The world is becoming more globalized in economic terms, this means that trying to cut back our demand will not have as great of an effect as it normally would since most automobiles in the world are here, but this is changing.  And unless alternative resources are as profitable as oil, then producers will have no incentive to shift to that in the near future.  That's how the market economy works.

Answer 5

Simple since gas companies know you will pay these high prices for gas they will keep the price as is and just make a little extra profit.

Answer 6

Without asking the station owners (and getting honest answers), there is no answer to this question.

However, we all need to beware of what "seems" to be the truth.  I'm not saying this does or does not happen, but it is human nature to remember those facts which support our beliefs, and to discount or reject those that we don't understand as "outliers" which cannot be explained.

So...gather some data...plot oil price on a daily basis for a month or two, as well as gas price at your favorite station, and see what really happens.  Then come back and tell us all.  The danger of sites like "answers" is it is full of opinions and short of real data and information.

Answer 7

Read this article:

http://auto.howstuffworks.com/gas-price....