I thought the price of oil determines gas prices?

Is there some equation, besides supply and demand, that I'm missing? That's the general, blanket comment I always hear, "well on today's markets the price of oil is $67 a barrel" then I'll hear, "price of oil today is $60 a barrel" yet gas prices increase. I just feel like it's something other than oil prices and supply and demand.

This page is a permanent link to the reply below and its nested replies. See all post replies »

room101 · 51-55, M

This is something that really bugs me about how many people view economics and business in general. Supply and Demand is used to explain everything. Which is total nonsense. Supply and Demand explains one thing and one thing only ie price equilibrium.

What is missing from the Supply and Demand argument are the component parts of price. In simple terms, these are Fixed Costs, Variable Costs and Profit.

The bit that's missing, in your above example, is the desire for PROFIT!

twiigss · M

@room101 You're exactly right. It's all about money. Oil prices could go down and gas continues to skyrocket.

The thing about prices is, once they increase they never decrease. As an example, if milk was $2.49 a gallon in 2020 and now milk is $4.49 a gallon, the price of milk will continue to be $4.49. I've never noticed prices to decrease.

That's less money for the big CEOs.

whowasthatmaskedman · 70-79, M

@room101 Well... Yes.. and the willingness of people to use regulation and unfair practices to distort that equilibrium price for profit..😷

room101 · 51-55, M

@whowasthatmaskedman With respect, compared to most other developed nations, the US has negligible regulations. Thanks to the monetarist ideologies of Milton Friedman. ideologies that have been debunked and dropped everywhere BUT the US.

whowasthatmaskedman · 70-79, M

@room101 Thats kind of my point. "Free market" economics works with a balance of forces. In democratic countries that balance is provided by the government and or unions.. To ensure the consumer/voter/employee/citizen gets a fair shake. In America there is no balancing force. 😷

room101 · 51-55, M

@whowasthatmaskedman Indeed. However, my point is that Free Market economics has been shown NOT to work...................anywhere! Unless one happens to be a billionaire🤷‍♂️

whowasthatmaskedman · 70-79, M

@room101 Sorry. Again I empathise with the point you are trying to make. But free market economics does work perfectly. In the classroom and textbooks and computer modelling..😷

room101 · 51-55, M

@whowasthatmaskedman Touché.............I yield🤣🤣🤣