F... gas prices

[Schneed10]

Where oil companies make all their money is when oil prices start coming down from a peak. Gas stations will raise the price of gas when the price of a futures contract for oil rises. But when the futures contract drops, gas stations aren't in a real big hurry to drop prices back down. The principle at play is called inelasticity of demand, for all you econ nerds out there. Basically it means that gas is something we all need, and we're willing to keep paying for it even as prices get to exhorbitant levels.

Gas prices seem to go up so fast because on the way up, they're simply following the price of the futures contract. But when the futures contract drops, gas stations know they don't have to drop prices right away, they know that if we were willing to pay $2.70 per gallon for the last week, we'll be willing to pay it again this week. So they try to hold it at $2.70 as long as they can. Then a station decides I'll set my price at $2.68 and people will flock to me to save money. Then the next station sets the price at $2.66, and then someone comes in at $2.64. And slowly but surely, this price competition brings the price back down.

That's why gas prices seem to go up so fast and come back down so slowly. It's a commodity we need, and we're kind of at the mercy of those who set the prices.

I mean think about it. At what price point would you decide OK that's it, I'm selling my car and taking the bus/train everywhere. It would have to get to like $5.00 for me to make that move. It's just the nature of the beast. The prices are what they are because America can't shake it's need for oil.