Sort of a rant on fuel prices

Message

jaybee · #1 Post by **jaybee** » Sat Sep 13, 2008 3:04 pm

Opinions -

I just got back from filling up with fuel. We all know what's happening out there in gas station land yesterday and today. I also just got back from buying building materials for a customers project.

So I ask this - compare these two cases:

1. Gas stations - They have fuel in their underground tanks that they have already purchased from their distributor. That fuel has been marked up to sell for $3.50 per gallon. A hurricane hits the gulf coast, shutting down refineries for a short period of time. Now that same gas is sold for $5.00 a gallon. Evidentially this is legal, normal and nowadays dare I say....expected.

2. A general contractor (me) - Goes to a building supply store and purchases $1,000 worth of plywood. This was purchased at a price slightly less than what your average handyman could buy it for, but then will be marked up 20% after being turned into a customer project so basically it is sold for $1,200. A hurricane hits the gulf coast, causing widespread damage and an immediate need for plywood. This will cause the price of plywood to spike - high prices will probably last for several months. Can you imagine the reaction I would get from my clients if I sold them this same plywood for $2,000?

What's wrong with this picture?

Bob Juch · #2 Post by **Bob Juch** » Sat Sep 13, 2008 3:25 pm

The stations shouldn't be marking up prices on the gas already in their tanks - only when they get a new delivery. In some places doing that is illegal.

TheCalvinator24 · #3 Post by **TheCalvinator24** » Sat Sep 13, 2008 3:28 pm

Bob Juch wrote:The stations shouldn't be marking up prices on the gas already in their tanks - only when they get a new delivery. In some places doing that is illegal.

If the demand suddenly spikes, then it makes sense for prices to go up. Even on existing supply.

This is not a defense of gouging, but I have never understood why the economic premise of supply & demand should go out the window when there's some sort of emergency.

Bob Juch · #4 Post by **Bob Juch** » Sat Sep 13, 2008 3:31 pm

TheCalvinator24 wrote:
Bob Juch wrote:The stations shouldn't be marking up prices on the gas already in their tanks - only when they get a new delivery. In some places doing that is illegal.
If the demand suddenly spikes, then it makes sense for prices to go up. Even on existing supply.

This is not a defense of gouging, but I have never understood why the economic premise of supply & demand should go out the window when there's some sort of emergency.

At this point there is no shortage, just fear there will be. SOP is to not change gas prices until a new delivery.

TheCalvinator24 · #5 Post by **TheCalvinator24** » Sat Sep 13, 2008 3:33 pm

Your response only focuses on the supply. Even if supply is steady and/or constant, increased demand justifies an increase in price.

jaybee · #6 Post by **jaybee** » Sat Sep 13, 2008 3:40 pm

So then Cal - If you had hired me to remodel your home and this was your plywood for your project, would you be OK for me to sell it to you at almost twice what I was going to - keeping in mind that I'm going to pocket the extra money?

Not that I have any intentions of doing this, it just seems to me that this kind of thing has become accepted with fuel prices these days. And FTR, the gas stations I am referring to are working from their existing supply of fuel, not new purchases.

#7 Post by **littlebeast13** » Sat Sep 13, 2008 3:51 pm

jaybee wrote:So then Cal - If you had hired me to remodel your home and this was your plywood for your project, would you be OK for me to sell it to you at almost twice what I was going to - keeping in mind that I'm going to pocket the extra money?

Not that I have any intentions of doing this, it just seems to me that this kind of thing has become accepted with fuel prices these days. And FTR, the gas stations I am referring to are working from their existing supply of fuel, not new purchases.

In answer to your proposed situation, I'd say Cal has the right to tell you to get lost if he doesn't want to pay the overinflated price for your plywood.

Just like everyone has the right to give gas stations the finger when they jack up their prices in anticipation of an event like this. Don't wanna pay those prices, don't fill up. There are some situations where it's unavoidable, but I guarantee you most people at the pumps this morning don't need gas at this moment.... they're just freaking out....

I personally think the price increases are more about anticipating shorter supply than adjusting for a current increased demand (And when people see prices spike like this, they flip and demand is artificially created because everyone's afraid the prices will only get even higher, or that all the stations are going to go dry for days). But anyway, if people refuse to buy gas at artificially higher prices, the stations will have no choice but to bring them back down due to lower demand.

That would never happen in our gas obsessed society though....

lb13

jaybee · #8 Post by **jaybee** » Sat Sep 13, 2008 4:41 pm

littlebeast13 wrote:
jaybee wrote:So then Cal - If you had hired me to remodel your home and this was your plywood for your project, would you be OK for me to sell it to you at almost twice what I was going to - keeping in mind that I'm going to pocket the extra money?

Not that I have any intentions of doing this, it just seems to me that this kind of thing has become accepted with fuel prices these days. And FTR, the gas stations I am referring to are working from their existing supply of fuel, not new purchases.

In answer to your proposed situation, I'd say Cal has the right to tell you to get lost if he doesn't want to pay the overinflated price for your plywood.

Just like everyone has the right to give gas stations the finger when they jack up their prices in anticipation of an event like this. Don't wanna pay those prices, don't fill up. There are some situations where it's unavoidable, but I guarantee you most people at the pumps this morning don't need gas at this moment.... they're just freaking out....

I personally think the price increases are more about anticipating shorter supply than adjusting for a current increased demand (And when people see prices spike like this, they flip and demand is artificially created because everyone's afraid the prices will only get even higher, or that all the stations are going to go dry for days). But anyway, if people refuse to buy gas at artificially higher prices, the stations will have no choice but to bring them back down due to lower demand.

That would never happen in our gas obsessed society though....

lb13

But it's not "exactly" overinflated. I mean, If my client tells me to take a hike for marking up this plywood and this is the plywood to finish out something pretty important - like their roof, then sending me down the road would require hiring another contractor - a contractor who would be buying plywood at the new higher price, marking it up as normal and still selling it to the client at the same $2,000.

For the gas situation, refusing to purchase is only a realistic option if the high prices last for a few days. After that, many are faced with the option of either buying the high priced fuel or not driving to work. It's also not a matter of competition as at least around here, once one station raises it's rates it only takes nanoseconds until all the others within sight do the same.

Maybe it's simply because we have no other recourse to purchase our fuel but I don't understand how this process can be legal, much less ethical. A long time ago, when I was in the marina business, we sold fuel. Back then, we were limited by federal law to a maxium markup of 16.5 cents per gallon over our purchase price from the distributor. If fuel costs did go up, prices were never raised until the next load was delivered.

PlacentiaSoccerMom · #9 Post by **PlacentiaSoccerMom** » Sat Sep 13, 2008 5:08 pm

Our gas is the same price today as it was yesterday.

gotribego26 · #10 Post by **gotribego26** » Sat Sep 13, 2008 5:27 pm

The stations here in Charlotte do not "buy" the gas in their underground tanks. It is delivered to them, but the distributor sets the price based on replacement cost. They set the the mark-up, but the distibutor can call them and raise prices on 15 minutes notice. They have elaborate systems to track what is sold and when.

TheCalvinator24 · #11 Post by **TheCalvinator24** » Sat Sep 13, 2008 5:40 pm

jaybee wrote:So then Cal - If you had hired me to remodel your home and this was your plywood for your project, would you be OK for me to sell it to you at almost twice what I was going to - keeping in mind that I'm going to pocket the extra money?

Not that I have any intentions of doing this, it just seems to me that this kind of thing has become accepted with fuel prices these days. And FTR, the gas stations I am referring to are working from their existing supply of fuel, not new purchases.

If we have a contract, then you are bound by the terms of that contract regardless of what might happen to your costs in the interim.

However, I do believe that an anticipated shortage in supply can justify an increase in price.

To me, the distinction between supply-on-hand and future supply shipments is a red herring.