Quote:
Originally Posted by Cowboy89
The price increase around May long is a reflection of a lot of things. Summer driving season is one of them increasing demand for the product. Another is the fact that what you put in your tank is different in March than what goes in around May. The refineries switch up to a summer formula in April. While this is being produced inventories of 'winter gas' are being liquidated at lower prices at the pumps during March and early April (usually) while they build up an inventory of summer gas. When the summer gas hits the stations they are no longer trying to rid themselves of inventory thus the price is automatically higher with the same demand levels.
Refineries have never been running with as high capacity as they do now in the 2000s so when the summer driving season hits there isn't enough gas available at a 80 cents a litre price. Since you've hit the wall as far as supply the price needs to go up to lessen demand. Since gas prices are fairly inelastic when talking about only a 5 cent a litre increase/decrease it actually needs to go up by 20-30 cents a litre to make any sort of a dent on demand. Yes the oil companies can still make a profit at 80 cents a litre, but then due to the demand there wouldn't be a reliable supply of gas at the pumps in the middle of July. Would you prefer 80 cent gas but waiting in multi-hour long lines or would you prefer $1.16/ litre and available when you need it?
Yes oil and gas companies are profitable now but if you look at historical refining margins, they were really low and sometimes negative in the 1980s and 1990s (ie refiners losing money to sell you gasoline at the market price). It works both ways, see the forest from the trees.
You could either take my word for it or you could demonize me as the son of lucifer because I work at an oil company and only spout out propaganda to continue lining my pockets and to stop you from saving the environment by actually making it more difficult for you to continue to pollute in high levels.
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Nice write up!
The market will do what it needs to work. Prices too cheap = chaos for the masses and lost profit for the producer; prices too high = chaos for the masses and lost profit for the producer. The answer is always somewhere in between.
Best part of your post was noting the 5 cent flex and how an impact on demand only comes about at the 20 - 30 cent range.