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Something I do not understand: - barrel price went from $100 to $60. That's $40 drop. - Price went from $3.60 to $2.80 a gallon in my city. That's $0.80 only

by fffrad 12y ago

Something I do not understand: - barrel price went from $100 to $60. That's $40 drop. - Price went from $3.60 to $2.80 a gallon in my city. That's $0.80 only I don't get it.

ibmthrowaway218 12y ago
http://www.investopedia.com/articles/economics/08/gas-prices.asp http://www.investopedia.com/articles/economics/08/gas-prices... The cost of the raw crude oil is only part (but a significant part) of the pump price. It's more 'fun' in the UK where fuel duty and other taxes (VAT) form the majority of the pump price:- http://www.petrolprices.com/the-price-of-fuel.html http://www.petrolprices.com/the-price-of-fuel.html
kyu 12y ago
Great point. 40% drop in oil prices vs. a 22% drop in gas prices. Bottom line is that gas distributors don't have to precisely reflect the drop in oil prices at the pump because they can make more money that way. There's also the fact that the oil prices generally reflect future prices. Gas stations need the physically delivered commodity. There's some small fluctuations there. I don't have a deep understanding of how gas stations work, if anyone else has insights would love to hear them.
- jdrols 12y ago
  > Bottom line is that gas distributors don't have to precisely reflect the drop in oil prices at the pump because they can make more money that way. This is a gross simplification. I'm not an expert or someone with a deep understanding of how gas stations work, but even I understand that a barrel of crude requires a complex process to turn it into gasoline and even more logistics to get it to the pump. Every one of the people in that process needs to be paid, including your friendly neighborhood gas station cashier. This line of thinking is the equivalent to wondering why the price of a new car hasn't decreased if steel prices hypothetically dropped. Most products cost much more than their raw materials because to change them from raw materials to products and to put that product on a shelf requires the hard work of many people.
refurb 12y ago
$100 to $60 is a 40% drop in the price of oil. The price of gas is only partially due to the cost of oil. Taxes make up a pretty chunk of the cost of gas. On average $0.50/gal.[1]. Don't forget the cost of refining and transportation. This chart says 62% of the cost of gallon is due to crude oil costs[2] So based on your $3.60/gal, $2.23/gal is oil. Reduce that by 40%, you get $1.33 and add back in the other stuff and I get $2.70/gal now. Not far off huh? [1]http://en.wikipedia.org/wiki/Fuel_taxes_in_the_United_States http://en.wikipedia.org/wiki/Fuel_taxes_in_the_United_States [2] http://www.eia.gov/petroleum/gasdiesel/ http://www.eia.gov/petroleum/gasdiesel/
- desdiv 12y ago
  Does anyone know why fuel taxes are calculated by volume instead of value? That's the opposite of pretty much every other tax on goods in the country.
  - phil21 12y ago
    Because fuel taxes are supposed to be an approximation of how many miles you drive, aka how much wear and tear you put on the road infrastructure. You put the same wear and tear on the road at $1/gal vs. $4/gal. Trying to create budgets against a commodity that rapidly changes prices as much as gas/diesel does would be rather difficult. For example, in 2015 we'd be forecasting huge budget shortfalls for any planned road maintenance due to the unforseen huge drop in gas prices.
    - ta75757 12y ago
      From what I've read ordinary passenger vehicles put just about no strain on modern roads. Only heavy vehicles like semis do. Tax is tax, money is fungible.
      - superuser2 12y ago
        Even if this is true, the business owners' argument to Congress would be that the consumer will pay for it either way; businesses that depend on transportation would just raise prices to compensate.
socalnate1 12y ago
Not all of the price of gasoline is derived from the price of crude oil. Some of the price is from taxes, transportation and refinery costs which have not changed. (The exact ratios vary depending on where you live).
timeal 12y ago
In San Francisco, average gas prices went from $4.33 to $2.92 (http://www.sanfrangasprices.com/retail_price_chart.aspx http://www.sanfrangasprices.com/retail_price_chart.aspx). That's a 33% decrease - matching quite closely the crude oil decrease of 40%. But as someone said, crude oil prices reflect future retail prices. When you go to a gas station you get fuel that is weeks/months old, so it makes sense to pay the price that crude oil was selling at weeks/months ago.
- joezydeco 12y ago
  What are diesel prices like? Here in Chicago, they never dropped. There's almost a $1.00 difference in gasoline vs diesel now.

by fffrad 12y ago

Something I do not understand: - barrel price went from $100 to $60. That's $40 drop. - Price went from $3.60 to $2.80 a gallon in my city. That's $0.80 only I don't get it.

ibmthrowaway218 12y ago

http://www.investopedia.com/articles/economics/08/gas-prices.asp http://www.investopedia.com/articles/economics/08/gas-prices... The cost of the raw crude oil is only part (but a significant part) of the pump price. It's more 'fun' in the UK where fuel duty and other taxes (VAT) form the majority of the pump price:- http://www.petrolprices.com/the-price-of-fuel.html http://www.petrolprices.com/the-price-of-fuel.html

kyu 12y ago

Great point. 40% drop in oil prices vs. a 22% drop in gas prices. Bottom line is that gas distributors don't have to precisely reflect the drop in oil prices at the pump because they can make more money that way. There's also the fact that the oil prices generally reflect future prices. Gas stations need the physically delivered commodity. There's some small fluctuations there. I don't have a deep understanding of how gas stations work, if anyone else has insights would love to hear them.

jdrols 12y ago
> Bottom line is that gas distributors don't have to precisely reflect the drop in oil prices at the pump because they can make more money that way. This is a gross simplification. I'm not an expert or someone with a deep understanding of how gas stations work, but even I understand that a barrel of crude requires a complex process to turn it into gasoline and even more logistics to get it to the pump. Every one of the people in that process needs to be paid, including your friendly neighborhood gas station cashier. This line of thinking is the equivalent to wondering why the price of a new car hasn't decreased if steel prices hypothetically dropped. Most products cost much more than their raw materials because to change them from raw materials to products and to put that product on a shelf requires the hard work of many people.

refurb 12y ago

$100 to $60 is a 40% drop in the price of oil. The price of gas is only partially due to the cost of oil. Taxes make up a pretty chunk of the cost of gas. On average $0.50/gal.[1]. Don't forget the cost of refining and transportation. This chart says 62% of the cost of gallon is due to crude oil costs[2] So based on your $3.60/gal, $2.23/gal is oil. Reduce that by 40%, you get $1.33 and add back in the other stuff and I get $2.70/gal now. Not far off huh? [1]http://en.wikipedia.org/wiki/Fuel_taxes_in_the_United_States http://en.wikipedia.org/wiki/Fuel_taxes_in_the_United_States [2] http://www.eia.gov/petroleum/gasdiesel/ http://www.eia.gov/petroleum/gasdiesel/

desdiv 12y ago
Does anyone know why fuel taxes are calculated by volume instead of value? That's the opposite of pretty much every other tax on goods in the country.
- phil21 12y ago
  Because fuel taxes are supposed to be an approximation of how many miles you drive, aka how much wear and tear you put on the road infrastructure. You put the same wear and tear on the road at $1/gal vs. $4/gal. Trying to create budgets against a commodity that rapidly changes prices as much as gas/diesel does would be rather difficult. For example, in 2015 we'd be forecasting huge budget shortfalls for any planned road maintenance due to the unforseen huge drop in gas prices.
  - ta75757 12y ago
    From what I've read ordinary passenger vehicles put just about no strain on modern roads. Only heavy vehicles like semis do. Tax is tax, money is fungible.
    - superuser2 12y ago
      Even if this is true, the business owners' argument to Congress would be that the consumer will pay for it either way; businesses that depend on transportation would just raise prices to compensate.

socalnate1 12y ago

Not all of the price of gasoline is derived from the price of crude oil. Some of the price is from taxes, transportation and refinery costs which have not changed. (The exact ratios vary depending on where you live).

timeal 12y ago

In San Francisco, average gas prices went from $4.33 to $2.92 (http://www.sanfrangasprices.com/retail_price_chart.aspx http://www.sanfrangasprices.com/retail_price_chart.aspx). That's a 33% decrease - matching quite closely the crude oil decrease of 40%. But as someone said, crude oil prices reflect future retail prices. When you go to a gas station you get fuel that is weeks/months old, so it makes sense to pay the price that crude oil was selling at weeks/months ago.

joezydeco 12y ago
What are diesel prices like? Here in Chicago, they never dropped. There's almost a $1.00 difference in gasoline vs diesel now.