Oil Prices Falling; Gas Still High

Aug 16, 2011
Oil prices fallingOil prices have been falling in recent weeks, but the price of gasoline is decreasing at a much slower pace. This is a time-honored tradition in the fuel market, but why is it that fuel prices spike so quickly and take months to come down? US News has some ideas.
First, there is the profit margin for gas stations. The higher the price is above the actual cost of oil, the higher the profit being made. Stations will continue buying fuel at the market price while keeping prices at a higher level in order to recoup any earlier losses or shore up for the next price spike. This reduced speed of price dropping also allows them to minimize their losses from buying their tanks at a higher price.

Competition also fuels gas price decreases, as stations tend to wait for someone else to drop their prices before dropping their own.  If a station buys a new tank just after a dramatic drop in oil prices, they have an excuse not to drop prices until they absolutely must. On the other hand, they can also use the advantage to drop their prices first and pull business from stations still using the old price, ultimately driving prices down, albeit slowly.

 The relationship between gas companies and oil refineries also has a large role in gas prices. It’s a complicated system, but the basic idea is that current inventories of fuel are lower than they have been for the past year, which makes gasoline more expensive even though the price of oil is the same per barrel as the same time last year.

The volatility of gas prices is not likely to go away anytime soon. Good fuel management is the best way to keep your business’ fuel budget stable. To start managing your fuel with the help of our team of professionals, try our FleetMatch™ system at www.FleetCardsUSA.com to find the card that’s right for your fleet.

Photo courtesy of Bill Lapp and re-used under the Creative Commons license.