Hacker News Reader

Comment by bretpiatt | Hacker News Reader

The constraints are in the shipping and refining. When demand goes up exploration and production (firms who find and get it out of the ground) get to charge more as end users fight over the limited supply.

Due to environmental regulations it is very difficult to build refineries, pipelines, import / export terminals, etc.

This is why when prices go up from $65 to $105 you do not see production companies increase supply further to get the extra sales, there's no way for them to get another barrel to the end customer.

View on HN

I don't buy this argument. Assume the oil has already been dug up and refined. Two gas stations next to each other: Shell & BP should compete on price to the point that minimum profit margins are established. This doesn't happen because it's not in their interest to compete. Instead it's in their interest to collude and maintain prices as high as possible knowing full well that a new player won't enter the market any time soon.

The oil cartel is alive and well.

Gas stations are almost never owned and operated by a major oil company. It is quite famously a business that immigrants get into due to its low barriers to entry, and they set the prices at the pump of their gas station.

Location is the most important factor in how much more a gas station owner can charge relative to other gas station owners. If you want to see how much gas costs at near zero margin, open up the Costco app and you can see all the fuel prices nationwide. Although Costco only sells Top Tier gas, but that should be comparable to other brand name gas stations such as Shell and BP and Exxon.

California offers good data here going back 20 years:

https://www.energy.ca.gov/data-reports/energy-almanac/transp...

It's not just that they're not owned/operated by the oil companies in the US; they don't even obtain their supply of fuel directly from the oil company. Every gas station takes delivery of commodity-standard fuel from midstream distributors that operate pipelines and storage terminals. The only thing that differentiates between the Texaco gasoline on one side of the street and the Shell on the other is the proprietary additive blend that is mixed in at the storage terminal when an order is filled.

Gas retailers in a given region are generally all beholden to whatever the market dictates the 'generic' fuel pricing will be. The majors have a lot less control over that than most folks think they do.

BP and Shell are vertically integrated and mostly definitely do own a large number of gas stations at least here in Europe.

However the owner doesn't really matter in this hypothetical example as long as BP and Shell actually control the price at which oil is sold.

Q: The gasoline stations in my area have increased their prices the same amount and at the same time. Is that price fixing?

A: A uniform, simultaneous price change could be the result of price fixing, but it could also be the result of independent business responses to the same market conditions. For example, if conditions in the international oil market cause an increase in the price of crude oil, this could lead to an increase in the wholesale price of gasoline. Local gasoline stations may respond to higher wholesale gasoline prices by increasing their prices to cover these higher costs. Other market forces, such as publicly posting current prices (as is common with most gasoline stations), encourages suppliers to adjust their own prices quickly in order not to lose sales. If there is evidence that the gasoline station operators talked to each other about increasing prices and agreed on a common pricing plan, however, that may be an antitrust violation.

https://www.ftc.gov/advice-guidance/competition-guidance/gui...

It's not about price increases, it's about the increase in profit margins. Oil prices can go up and down due to supply constraints but profit margins can remain constant.

If you're a producer (extractor...) of oil, and the price of oil goes up, then you're going to make more profit unless your costs went up too. Why would you keep selling for a lower price, when you have pricing power?

Are these not constant enough?

https://news.ycombinator.com/item?id=31272505

Surely there is some time allowance for extreme changes in supply and demand for margins to settle down again.

Reply on news.ycombinator.com