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Originally Posted by Red Mile Style
Yeah, if someone can explain the economics of oil, that would be great.
I've taken a year of economics, and it still makes absolutely no sense to me. It would appear as though the oil companies have total disregard for the basic principles of economics and do not follow the rules that govern economics.
Does this make sense? Are there any economics majors out there? (Just when I thought they were completely useless  ) |
We're not completely useless, just mostly useless (all the economicsts laid end to end still couldn't reach a point)
Anyways, the reason gas prices go up immediatly when crude prices go up is that the station isn't concerned what the gas they have in the ground is worth, the number they need to worry about is the cost to replace the gas already in the ground.
To a certain extent, prices do take a bit to filter through the market, but really, each step has it's stockpile of goods (crude to refinery, refinery to distributor, etc.) but again, it's the cost to replace the goods already owned (the sunk costs)
Think about it this way, if you bought an apple for 50c, and all of a sudden, apple prices shot up to $10, would you sell that apple for 50c or 10$?