Sunday, February 04, 2007

Gasoline vs. Other Commodities

I'm not complaining about gas prices, per se, but Scott Baker's letter in the Eureka Reporter this morning brings up something I've always wondered about: Why do gas prices change so quickly?

Actually, I think at least some gas distributors change their prices even quicker than Scott might think. I know a friend told me about filling up at a Renner Petroleum card lock station in Eureka one time.

His truck had two tanks. He filled one, then filled the other. He noticed when he got his bill the next month that the same gas that went into the two tanks were different prices.

He called Renner Petroleum and asked about it. He was told something along the line that the current price was based on the market price at the time and that price changes throughout the day. In his case the price changed between the time he filled his two tanks.

I gathered from that that if the average price for gasoline ( or crude oil?) at the commodities exchanges goes up or down, Renner adjusts their prices accordingly, although I'm not sure how frequently.

Scott Baker makes a point in wondering why we pay more for something a company might have paid less for. But I'll take the question a bit further: They say the prices go up and down a lot because gas is a commodity like corn or sugar.

I don't see five pounds of sugar selling for five cents more or less throughout the day, at least in any stores I've been to. Same with whole wheat flour or corn. They buy at a certain price and sell at a certain price. Why is gasoline different?

In a sense I guess this is all a moot point when you think about it. If distributors did as Scott suggests, and sold the lower priced gas for the same price until they put the higher priced gas in their tanks, the price would still change. The price changes would just take effect later rather than right away and, on average, you'd see little difference at the pump than what you see now.


24 Comments:

At 10:18 AM, Anonymous Anonymous said...

Some time back when there were complaints about gas prices an article was published about how the stations are not making money and leave the price higher for a while. Believe that?? If they pay lower prices for a delivery or two and leave the prices high aren't they making money? If they aren't making money then why stay in business? Somehow logic does not prevail here.

Costco on Saturday was $259.9. Costco in Santa Rosa on Jan. 30 was $235.9 and on the 31st was $239.9. I think they get their gas from same refinery as Eureka. Maybe the price here is higher because the truck has to go more miles. I believe that Patriot station gas is also trucked in. Most of our gas arrives via barge and may be more expensive than trucking it in.

Agree with Scott Baker about his questions and statements re gas prices.

 
At 10:59 AM, Blogger Fred said...

"Maybe the price here is higher because the truck has to go more miles.".

I don't know that that would explain why some gas stations waaay out there have cheaper gas. Someone pointed out quiet some time ago some places, I think Weaverville was one referred to, have cheaper gas and they're up in the mountains.

Hmmm...I really didn't want to start a big discussion on gas prices (per se, as I said) since the subject's been beaten to death in the letters to the local papers, but I'll throw this in:

What I heard, and it kinda made sense to me, was what a guy I ran into at a Renner Cardlock told me. He said he talked to whatshisname Renner, the boss at Renner Petroleum. He told him that gas is sold on a kind of cartel system, where certain areas get their gas from certain refineries or dealers, and that's the way it was.

Renner apparently get his gas at a high price from some refinery and is, for some reason, unable to look elsewhere.

I think that's what Mike Thompson was after when he made an attempt in Congress to outlaw "zone pricing". That went nowhere fast, apparently. There must be some powerful forces at play here.

 
At 1:43 PM, Blogger ΛΕΟΝΙΔΑΣ said...

As you probably know, gas sold in Kalifornia must be refined in Kalifornia due to state environmental requirements. The north coast is as far away as you can get from any refinery in the state ergo transport cost. Also, is it price-gouging for the oil companies to raise the price of all the gasoline already bought and stored before "today's crisis."?
Say you owned a small 1000 gallon inventory of gasoline that you purchased for $2.50 per gallon. Each week you'd sell me 10 gallons at $2.60 per gallon. Suppose Hugo Chavez decided to raise the price of his crude oil in order to pay Russia's price for 4 squadrons of jet fighters raising the price you must pay for gasoline to $5.00 per gallon. You still have gasoline that you purchased before the jump in prices. When I stop by to buy gasoline from you, how much will you charge me? I'm betting that you're going to charge me at least $5.10 a gallon. Why? Because that's today's cost to replace your inventory. Walter Williams explains it perfectly at:
http://www.gmu.edu/departments/economics/wew/articles/06/prices.html

 
At 6:28 PM, Blogger samoasoftball said...

Not too many care locally about the price of gas. Hmmm. You would think they would.

 
At 8:36 PM, Anonymous Anonymous said...

We all care, however it's sort of a dead horse.Go any direction for cheaper gas.Everyone is well aware of the issue but nothing can seem to be done about it.It's always been that way in my driving years.

 
At 12:42 AM, Anonymous Anonymous said...

The local cartel sets the local price. They are businessmen and women who like to brag about being in "competition" with other businesses, but that is just a cover story.

They set prices in violatioon of the law, (unless laws against price-fixing have been revoked), but no one dares to enforce the anti-trust laws. They've done it since at least 1986, when the Times-Standard reported local gasoline prices were higher than anywhere else in the continental United States. Our gasoline has continued year after year as the most expensive in the nation.

Who can blame this relative handful of business people for taking advantage of their power and prestige? They are well-known, and in many quarters, well-liked.

And just because everytime you fill your gas tank, they take a cut off the top, that is no reason you shouldn't like them, too.

Remember, not a single local or state politician has shown the backbone to mount an effective challenge to these pirates. So who do you think you are to try to make a change in their business practices?

 
At 6:09 AM, Blogger Pogo said...

Yes 12:42AM, a brilliant idea. Just have the parasites in Sacramento set the price of gas the same from Benicia to Crescent City. Or why not apply for a grant to do a startup business to compete with Renner et al? It wouldn't take but a few hundred+ million $ to acquire the tanker trucks, pipe lines and barges to the govt/enviro nazi regulated refineries that remain in the state and must buy their crude oil from our Mooslime and Chavista "friends". Do you believe the enviros would allow the necessary destruction of the spotted cockroach habitat? Oh, excuse me. Trinket selling and youth hostels along nature trails are a better idea.

 
At 6:19 AM, Blogger Fred said...

8:36 wrote, "Go any direction for cheaper gas.".

I was surprised to see gas in San Francisco was more expensive than in Eureka, when I was down there last month. I thought that odd because when I first started having to go down there it seemed to me the price was about the same.

I think it was $2.57 a gallon or thereabouts, when I filled up in Eureka before leaving and something like $2.70 or $2.80 in San Francisco.

Maybe I was reading the price for premium? Except I believe I took note at 3 or 4 different stations.

And Mendocino County was cheaper by ten cents, or so, than Eureka, except for Laytonville.

 
At 6:20 AM, Blogger Fred said...

Leonidas wrote, "Because that's today's cost to replace your inventory.".

Hmmm...hadn't thought of that. One has to wonder why that doesn't apply to other commodities like wheat and sugar, though.

 
At 7:28 AM, Anonymous Anonymous said...

you're wrong 12:42

 
At 8:47 AM, Anonymous Anonymous said...

It was certainly amazing to see the price of crude oil plummeting from the 70$ toward 50$ a barrel as soon as the Republicans lost both houses. It is also interesting to remember how the prices skyrocketed as soon as Clinton left office, rolling blackouts etc. I'm sure it's just the normal ebb and flow of Fascism. Er, Capitalism.

 
At 8:52 AM, Anonymous Anonymous said...

Some out of the way places have cheap gas. Hard to get to like a little town near Clearlake. Small towns off of I-5. Not a lot of logic to the pricing.

About a month ago one of the newspapers had a small article about prices naming Hawaii as having the highest gas price -- but we were a few cents higher than Hawaii. Their gas comes in by a ship and that can't be price effective. At least I don't own a RV and most of my cars get pretty good gas mileage.

 
At 9:02 AM, Blogger Fred said...

I think I might have an idea why gas doesn't sell the same way that corn, sugar and other commodities do. How's this:

Gas pumps nowadays tend to be electronically linked to one place or another where the price can be changed from a central location.

Bags of flour and sugar, in fact most things you get in the supermarket can't have prices electronically changed in a minute or so. They'd have to go around and manually change price tags all day long. That would be a headache and cost prohibitive.

So, they can't sell other commodity items like that. If they had electronic dispensors, maybe they would. Then again, if they tried that, they couldn't have inserts in the paper advertising the prices of everything as the prices would always be changing.

 
At 11:10 AM, Anonymous Anonymous said...

Pogo said...

But I didn't finish reading what Pogo said.

I stopped reading because Pogo had not bothered to read what I had written.

I never said We need the government to fix the price of gasoline.

I said we need the government to make sure the gasoline distributors stop fixing the price of gasoline.

In other words, we need the government to make sure competition in the gasoline industry is a reality, not just a slogan.

Because, as has been said so often, when businesses compete, customers benefit.

After over twenty years of price-fixing by the gasoline distributors, the buying public here could use some relief.

Is there a single "representative" in our government willing to challenge this self-serving local cartel on behalf of the people he or she supposedly "represents?"

 
At 12:02 PM, Blogger Pogo said...

Yes. Barbara Boxer as well as other members of both congress and the Cal legislature (dimmocrats all) have initiated hearings/investigations with great fanfare in order to "expose price fixing" by the oil industry. The hearings/investigations always turn up zilch and the results are either ignored or reported on page D 25 of the press. If you have any evidence of illegal price fixing (other than the usual leftist innuendo) you will be rewarded handsomely by your fellow socialists and therefore have no need to comment as "anonymous".

 
At 12:05 PM, Anonymous Anonymous said...

Pogo is an idiot.
Of course, being a Republican
is a mental disability.

 
At 1:10 PM, Anonymous Anonymous said...

12:05 That's some hard hitting debating tactic.

 
At 6:18 PM, Anonymous Anonymous said...

12:02, really. There is no such thing as "illegal price fixing" in actuality; it's just a concept for the industry to avoid. When they fix the prices it's done in "good faith", which is a cornerstone of capitalism. What's that you say, our republic is Fascist? Oh sh*t , we're f*cked....

 
At 7:30 PM, Blogger ΛΕΟΝΙΔΑΣ said...

6:18PM Maybe you need to look up the definition of fascism. Hint: Who controlled the manufacture of Zyclon B gas in Germany, IG Farben or the German government?

 
At 9:55 PM, Anonymous Anonymous said...

A system of government that exercises a dictatotship of the extreme right, typically through the merging of State and business leadership, together with belligerent nationalism.-7:30 I have no idea what you're talking about. Geography?

 
At 11:47 PM, Anonymous Anonymous said...

.
I agree with my critic on one point. Some politicians have looked into gasoline industry price-fixing.

The critic, once again, misses the point. I never claimed that there was price-fixing all across America.

The price-fixing I am concerned about is happening right here in Eureka.

It has been going on since at least the mid-1980's, when the Times-Standard wrote an editorial against the abnormally-high price of gasoline here. That editorial included pictures of some local gas pumps. Remember it? I think it was 1984.

The closest thing we have had to an investigation of the local price-fixing was under former District Attorney Terry Farmer. Unfortunately, he chose to focus on distributors centered in Fortuna, and the case went nowhere.

But the fight isn't over. In the year 2007, an honest D.A. or some other honest "representative" of the people of Eureka might yet stop the highway robbery that is happening every single day of the year at Eureka's gas stations.
.

 
At 6:33 AM, Blogger ΛΕΟΝΙΔΑΣ said...

9:55 Congratulations! You got the definition half right. The party in charge of Germany 1933-1945 was NSDAP. Translating the acronym: National SOCIALIST German WORKERS Party. The corporations nominally retained their management but were in fact subject to government diktat (collectivized). I.G. Farben was the chemical corporation ordered by the German govt. to develop and produce the gas used in the extermination camps. Ditto for Krupp in producing weapons.

 
At 9:15 AM, Anonymous Anonymous said...

6:33, That's the COMPLETE definition word for word from the dictionary....this gibberish about German gas etc. is not Fascism. Have you ever heard of Italy?

 
At 9:01 PM, Blogger hucktunes said...

Four items that always seemed to share the same or nearly the same price as a kid from the fifties onward are a half gallon of milk, a loaf of bread, a pack of smokes and a gallon of gas. This uniformity went haywire in the early nineties.

 

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