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Tough Questions, Quick Answers

Why Does Petrol Price Act 'Uppity?'

Question:

Why do gasoline prices go up so much faster than they come down?

Short answer: For the most part, it just seems that way.

Sometimes oil prices will drift upward over a long period, then fall suddenly when inventories surge. But we tend to remember the times that prices jump and stay high.

"It is not true that prices rise quicker than they fall. Many times, retail prices lag far behind wholesale prices going up, and vice-versa," said Dan Gilligan, president of the Petroleum Marketers Association of America.

There is another factor at work here: Gasoline sellers never, never want to lower the price of gas. Wholesalers charge retailers the maximum amount possible, because they're in business, too.

Nobody says, "Hey, the cost of oil is going down, we'll slash our prices" or "Well, the holidays are over, so let's crank down the gas price."

Gasoline sellers want to keep prices as high as they can for as long as they can, to make a dollar or to recover costs. They won't lower their price until inventories build up and they have to move product.

As always, supply and demand rules.

Related question:

How much money do gas stations pocket from these higher gasoline prices?

Short answer: Pocket change.

According to the EIA, the breakdown on U.S. gasoline price inputs looks like this, for $1.40/gallon gas:

  • Crude Oil -- 42 percent.
  • Taxes -- 30 percent.
  • Refining -- 15 percent.
  • The other 13 percent goes to distribution and marketing.

In the U.K., 73 percent of the price of a liter of petrol goes to taxes.

Retailers/station owners get pennies per gallon, and most hope to turn a profit on gasoline of 4 percent or so.

Higher upstream prices can actually squeeze the margins of retailers, especially independents.