Back when the price of crude oil was in the news a lot, if a rise was announced, gas stations would immediately hike prices, even though it takes like a month for the oil to be refined into gas and delivered to the station.
Inventory is priced and sold according to market conditions, not the cost of goods.
Everyone does this. If someone was trying to sell their old car and they saw news of upcoming tariffs on cars, they’d expect to sell their car at a higher price even though the tariffed cars haven’t arrived yet.
A second factor is that volatility and unpredictable policy raises risk, which increases prices. There will be a lot of price increases in excess of base tariff rates simply because everything is changing rapidly on the whims of this administration and businesses need more buffer for unexpected shocks.
If you’re a company who set up manufacturing in China, placed orders 4 months ago, and you’re watching the tariff rate change from 65% to 125% or more in the span of days with threats of more, you have to increase your prices a lot to have more buffer. Those parts you ordered now have an unpredictable price tags attached when they arrive at the port. It’s completely out of control.
Interestingly I’ve seen the exact opposite happen and cause major problems.
In Japan the US Military buys fuel and sets the price at its on base stations according to what they purchase it for. On several occasions when I lived there this resulted in the Base CO having to address everyone and tell them if they don’t buy the fuel (that is now significantly cheaper outside the gate) then the Exchange cannot buy new fuel, and they may have to shut the station down permanently.
It never came to that; everyone just went and paid the higher price for a tank and the issue was resolved.
My point is that trying to price a commodity that moves prices like that by a lagging indicator is a great way to capture business on one side and a great way to go bankrupt on the other.
That's perfectly rational though. Stuff is priced taking into account the current value, and a raising crude oil price immediately increases the value of the already refined product. Just like falling prices would immediately lower the value of the already refined product.
Do falling prices in crude oil reflect in gas prices as instantly as rising prices in crude oil do though? I think that asymmetry is what the poster was calling out. It lets resellers skim a bit of extra profit off of the volatility, by raising prices quickly but lagging on lowering them.
And i know i simplifying things A LOT here.. but that is the mentality behind it..
When crude oil price go up then gas station raise their prices because they know next they they buy it will be more expansive and they will need more money to afford it, so they raise their prices prices immediately..
On the other hand, if crude oil prices drop, it means that next time they buy it will be cheaper, but the gas they currently have was expensive, so they need to keep the prices up to recover what they already paid for it..
