How are fuel prices set?

N941WR · #1 02-12-2009, 10:08 AM

It is not my intention to turn this into a debate on politics or thievery, so please don't go there.

As of today, oil prices are below $35 a barrel and yet in and around Charlotte, NC 100LL prices are 2.99/gallon and the FBO said they will go up to $3.20 with his next load. (Auto gas is around $1.90 a gallon.)

How do they set fuel/gas prices? It seems to me that the price should be going down, not up.

Are fuel prices no longer tied to the price of oil?

A little help please. I have tried doing the research and can't find a reasonable answer.

RVbySDI · #2 02-12-2009, 10:16 AM

Quote:

Originally Posted by N941WR

I have tried doing the research and can't find a reasonable answer.

Tongue in cheek answer. Perhaps there is no "reasonable answer".

Mike S · #3 02-12-2009, 10:17 AM

Crude price is only one factor in the final cost of gasoline.

It is a variable cost, subject to change, while there are other costs which are fixed----cost of labor, or cost of property taxes etc.

If the crude is 10% of the total cost, and crude drops by 50%, the final cost will not drop 50%, it will only drop 5%.

I know this is way over simplified, but it gives an idea of what is going on.

Hope it helped.

MNAv8or · #4 02-12-2009, 10:17 AM

Last I had heard, OPEC needed oil to be around 44 dollars a barrel for them to be able to operate without issues. As you have noticed, oil is below that amount. Opec held a meeting and decided to cut production ALOT to drive the price of gas back up. I guess they are only happy if they make 40 Million a year.
I agree with you, price should reflect demand, but basic econ I guess doesn't play into the game with greedy people.

I wish AvGas was 2.99 here in Minnesota. Cheapest I have seen is 3.60, but it is better then 4.20 a gallon any day.

az_gila · #5 02-12-2009, 10:27 AM

....of the wholesale 100LL prices quoted every Tuesday to our Airpark has shown a steady increase over the last 4 to 5 weeks.

Since I'm presently on a temporary e-mail system in cold, wet Liverpool, I don't have the full history, but last week it increased 14 cents and the increase was 13 cents the week before that.

The increases you are seeing seem in line with at least the AZ wholesale cost. An quick review of www.airnav.com local prices support this.

So I guess the connection to the quoted oil barrel price is somewhat tenuous...

plehrke · #6 02-12-2009, 10:50 AM

Price of gas is based on what the refineries are producing. If they have a shortage of avgas they raise the price. Avgas is such a small percent of a refineries production the price vaires based on when they are refining some of if they are producing autogas, or what ever.

My local FBO just dropped the price of avgas $.75/gal due to changing from BP to Phillips. Turns out in STL there is no BP refinery to make avgas so it is trucked in. This is because BP refuses to buy fuel from other distributor. Bottom line is that price is also greatly effected by companies policies and geographical location.

RScott · #7 02-12-2009, 08:31 PM

I suspect one reason AvGas prices don't track mogas or oil prices very well is that your airport doesn't get deliveries several times a week like you local gas station does. So if the FBO fills his tank today at a cost that requires a $4 price, he won't change until the next delivery. At a local airport, the time between fillups was something like 60 days, last I heard. And that was before winter.

Ron Lee · #8 02-12-2009, 09:47 PM

Auto gas prices have risen about 40 cents since their most recent low a few weeks ago.

Flyrod · #9 02-12-2009, 11:49 PM

I just had this conversation with my fuel distributor last week. He has a third generation fuel distribution business and very knowledgeable on the subject. His opinion of the problem can be expressed in two words?. Wall Street. Actually his term was investment bankers and their manipulation of futures contracts.

******He was of the strong opinion that you should not be allowed to trade in petroleum energy contracts unless you have the ability to take delivery of the product and consume it or store it. ********

Being involved in the petroleum business for 23 years now, I whole heartily agree. These money managers step in between the producers and consumers and create artificial demand that is based more on the amount of cash available then any supply and demand of the product itself. If political leadership would institute the simple paragraph above you would be gassing up your car with $1.60 per gallon gasoline when crude hovers at $35.00 a barrel.

Of course 100LL does have other issues but would generally track around $1.00 more a gallon unless regulators change the ground rules.

LarryT · #10 02-13-2009, 12:47 PM

According to "60 Minutes," not necessarily a reliable source, about 27x the actual amount of available oil futures has been traded on the commodities market in recent times.

Changing the rules to only permit companies that actually could take delivery would eliminate much of the speculation that de-stabilizes prices. The original purpose of futures contracts was to ensure that users had an uninterupted supply, not to enable speculators to make money on paper.

Destabilized energy prices have terrible effects on business; utilities can't make an informed decision re how to fuel power plants and auto company product planners can't determine what their product mix should be, for example.