Q&A of the Day – What’s really behind instant gas price increases
Each day I’ll feature a listener question that’s been submitted by one of these methods.
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Today’s entry...
I take no joy in calling you wrong. :(
My local gas station went from $2.29 / gal in the morning to $2.59 / gal last night!!!
Bottom Line: I received this note on back of my Tuesday explanation of what could happen with gas prices based on the immediate reaction in the oil markets after the Saudi Arabian oil field attack. In that story I explained that based on Monday’s trading activity, the average cycle to purchase gas by gas stations, and the percentage of gas prices that are determined by the commodity itself...the high end of the related price increases would be about 18 cents per gallon. And that’s if those prices were to hold – which they haven’t. Oil prices have backed off their Monday highs by about 6%, that would project to a price increase that’d be closer to about 12 cents per gallon.
There are two reasons I presented that story in the first place. The first was the dearth of accurate analysis being provided about the potential impact at the pump to you. And that leads to the second reason. To help inform and protect against gas station operators taking advantage of the news cycle to unnecessarily raise prices. Just like what appears to have happened in the one cited in this note.
Most news outlets are quick to report stories that appear to have a direct consumer impact. The problem is that most lack credible analysts providing empirical information. Take for example, the impact of the Trump tax cuts to you or the partial government shutdown to the economy – gas prices are a different version of a similar thing. Often, outside marketing firms producing loose estimates are cited and consumer expectations are set. This type of news reporting can unintentionally hurt consumers.
Baring unique circumstances unrelated to the Saudi oil attack, the station you cited is trying to take advantage of the situation. The gas at the station can't be purchased and delivered in real time. It takes an average of ten days for operators to purchase gas until the time of delivery. The average station takes delivery every three to five days. Intra-day purchase and delivery doesn't exist. But if almost all news media is reporting that gas prices will rise, with wild ranges like five to thirty cents, as happened on Monday – voila. Operators often have an opportunity to raise prices on conditioned consumers.
As for the average price of gas in Florida... Prices are up an average of eight cents to $2.46 statewide since last Friday.