Sunday, July 12, 2015

Wild swings in the price of gas leave reader fuming

R.M., a reader from California, takes issue with "the capricious nature of gasoline pricing."

He explains that the time it takes crude oil to travel to refineries, be processed into multiple products (including gasoline), and finally sold to the gas stations that serve consumers can be "up to several weeks." Yet, whenever crude oil prices increase, the price at the pump is immediately boosted, he notes, even though that gasoline was processed from crude oil sold to the gas station at a lower price.

What's more, R.M. points out, if the price of crude oil dips, consumers typically don't see any immediate drop in gas prices.

"There's usually a much longer lag to reduce the at-the-pump price when crude prices drop," her writes. "As a consumer of gasoline for the past 40 years, this pattern is fairly accurate."

R.M. knows that prices at the pump are set to make a profit. It's the gasoline suppliers (refineries, oil companies, distributors) that dictate the going rate at the pump, sometimes even forcing station owners to sell regular gas at a slight loss to raise the volume of customers, "with the hope of making up for that loss with the profit from higher-priced premium gas and any other sales revenue available at the station."

Although R.M. acknowledges that oil companies and gas stations have the right to charge whatever they can get for their goods, he wonders whether it's right to raise and lower gas prices at the pump price so inconsistently.

As a fellow consumer of gasoline, I share R.M.'s frustration. In some cases, the wild differences in prices from state to state make some sense given varying tax rates on gas. But the frequent price swings don't make sense to the average consumer. Neither does the variance in price from station to station.

Does that make the price swings unethical? Not necessarily.

Unless suppliers are engaging in illegal price fixing, setting their prices based on what's legal and what the market will bear seems fair, Suppliers should not gouge gas station owners, however, and station owners should not gouge consumers.

Fortunately for consumers, websites and apps such as are now available that report the lowest gas prices in a given area. (A quick check just revealed that there's a 14 cent per gallon difference among stations within two miles of my home.)

The right thing for gasoline station owners to do is charge a fair price for their goods so they can run a profitable business. The right thing for consumers to do is shop around for the best gas prices they can find. If enough consumers gravitate to stations offering the best prices, the market may send a strong signal to neighboring stations that they should reconsider their pricing. 

Follow him on Twitter: @jseglin 

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1 comment:

Anonymous said...

This issue comes up all the time. Wholesale price goes up so retail does also, not accounting for inventory.
It is the way many scrap dealers make money. Buy market, hold, and sell high. Also risky.
If unethical, it is only barely so as nobody is going to keep track if existing stock and change when gone.
Alan Owseichik
Greenfield, Ma.