Gasoline prices are set on the commodity markets through the actions of thousands of buyers and sellers. The price of gasoline is mostly a function of the price of crude oil and demand for gasoline vis-a-vis other petroleum products like heating oil, etc. OPEC sets the price of crude. All this is taken into account by commodity traders.
The Federal Trade Commission has investigated price fixing by the oil companies a number of times and found no evidence that it exists. Oil companies take their lead from the commodity markets.
2007-01-29 13:23:04
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answer #1
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answered by Flyboy 6
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The government has little direct involvement in determining gas prices, except for the fact that the United States keeps a "strategic gas reserve" which has been tapped at various points in history to relieve price pressure when demand got high. The U.S. government also sets tax rates on Gasoline, which doesn't drive up the price of gas, but rather the end consumer cost.
Several factors feed into Gas prices. The first is demand. The more people asking for gas, the higher the prices that the sellers of gas can ask, and still expect to be paid. Say there's four hundred gallons of gas to sell, and there's twenty people who each want 30 gallons of gas. The total need for gas is 600 gallons. Obviously the company who is selling gas can't supply everyone, so they set the price very high, because they know that some people will be willing to pay higher prices, while others will choose to spend less money, and go without gas. This is what economists refer to as supply and demand.
However, in the real world, things aren't quite so simple. The companies which drill for the oil, and who produce the gas from the oil can choose to produce more or less gas within a given period, to change the prices. However, they have to work an equilibrium, because if gas prices go too high, then their competitors will be able to charge lower prices, and will steal their customers.
If you have an agreement with your competitors (collusion) you can of course all raise your prices as much as you want without any regulating forces. However, this sort of "Price Fixing" is illegal. The U.S. Government has investigated several charges of collusion and price fixing within the gas industry, and not found any evidence to support it.
Making things even worse, on wall street, things called "Oil Futures" can be bought and sold. Basically, you promise that you'll sell someone a set amount of oil 3-6 months from now at a given price. Because gas prices were rising, quite a few people were taking gas off the market and storing it for 3-6 months betting that they would make more money at the end of that time. This constricted supply (there was less gas on the market, because some of it was in storage), and as a result, prices rose. Most economists I've heard from agree that this was the main cause of the gas price hikes we saw in 2005 and 2006.
2007-01-30 09:40:04
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answer #2
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answered by Adam N 2
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