Why gas prices stay high is a question that pops up every single time we see the news talking about a crash in crude oil markets. It feels like a total scam sometimes. You see the price of a barrel of oil dropping on the news at night and you expect to save some money at the pump the next morning but it just never happens that way. Why gas prices stay high involves a lot of moving parts that the average driver doesn’t usually see because we are just looking at the big sign with the numbers on it while we fill up our tanks.
Read Also: 7 Golden Fuel Saving Tips to Reduce Consumption and Save Gas
The first thing you have to understand is that the oil you see traded on the stock market isn’t the same thing as the liquid you put in your car. Crude oil is just the raw stuff pulled out of the ground and it has to go through a whole process before it becomes fuel. This process involves refineries and transport and taxes which all stay pretty expensive even if the raw oil gets cheaper for a little while. This lag is the main reason why we feel the pain at the pump for longer than we should.
The Reality of Why Gas Prices Stay High
When we look at the logistics of the fuel industry we see that gas stations usually buy their fuel days or even weeks in advance. If a station owner bought a huge tank of gas when prices were at their peak they aren’t going to lower their price just because the market dropped today. They would lose a ton of money if they did that. This is why gas prices stay high at your local corner station because they are trying to break even on the expensive inventory they already paid for. They wait until they buy a new cheaper shipment before they pass those savings on to you.
Read Also: Oil Prices Rising as Iran Conflict Escalates
Another big factor is the cost of refining. Refineries have their own sets of problems like maintenance schedules or switching between summer and winter blends of fuel. If a refinery is having issues it doesn’t matter if oil is cheap because the supply of actual gasoline is low. This bottleneck is why gas prices stay high even when there is plenty of crude oil sitting in storage tanks out in the desert.
Distribution and Marketing Costs
It is not just about the oil and the refining though. You have to think about the trucks that bring the fuel to the station. Those truck drivers need to get paid and the trucks need maintenance and their own fuel. These “middle man” costs are very sticky and they don’t fluctuate with the daily price of a barrel. This is a huge part of why gas prices stay high for the consumer. Plus the gas station itself makes a very small profit on the fuel anyway because they make most of their money on snacks and coffee inside the store.
Taxes are another huge part of the bill that never goes down. Most states and countries have a fixed tax per gallon. If oil prices drop 50 percent the tax stays exactly the same. This floor on the price is why gas prices stay high relative to the raw material costs. You are paying for roads and infrastructure every time you click that nozzle and that price is set by law not by the market.
Psychology and Market Competition
There is also a bit of psychology involved in this whole mess. When prices go up stations race to raise their prices so they can afford the next expensive shipment. But when prices go down they tend to “drift” down slowly. This is called “rockets and feathers” by economists because prices go up like a rocket but fall like a feather. This behavior is why gas prices stay high during the transition periods of the market cycle. If the station across the street isn’t lowering their price yet then your local station has no reason to rush into it either.
Demand plays a role too. If it is summer and everyone is going on road trips the demand for gas is huge. Even if oil is cheap the high demand for the finished product keeps the price up. Understanding why gas prices stay high requires looking at how much people are actually driving at that moment. If the world is moving around a lot the prices are going to stay firm regardless of what is happening in the oil fields.
Ultimately you can see that the relationship between oil and gas isn’t a straight line. It is more like a messy web of global politics and local business. That is why gas prices stay high for weeks after a market crash. It takes time for the cheap oil to be pumped and refined and shipped and finally sold to you.
Read Also: Salawat App Breach: Can Hackers Aid Iran Protests?
Next time you are frustrated at the pump just remember that the system is built to be slow on the way down. It is frustrating for everyone except the people at the very top of the chain. We just have to wait for the “feather” to finally land on the ground.
