Gas Prices: Why Won't They Drop?

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Gas Prices: Why Won't They Go Down?

We asked Lipow: Let's assume we were talking about a bakery, not the gas business. If the baker's price of eggs and flour drops, consumers could expect to see markdowns on the cakes -- right? Right, he agreed. Unless the bakery's oven were broken -- which, he says, is the right analogy for what's going on in refining. "If the oven ain't working, you can't bake the cake." Too few cakes mean prices don't go down.

There's another complication at work, says DeHaan: Gas station owners respond one way when the wholesale price of gas is rising, but a different way when it falls. "Stations are quick to raise their prices at the pump. They do it in anticipation that they themselves will have to pay more for their next wholesale load. Today's owner is looking at the numbers and seeing that the wholesale price is up maybe 20 cents a gallon. If he's going to have to buy 8,000 gallons, that's $16,000. Where is he going to get that? He can get it by raising retail prices quickly."

Station owners don't make their money when prices rise, says DeHaan; instead, they try to keep prices in check to compete with other stations. "But when prices drop, that's where they make their money. It's an unwritten rule in the industry: when prices start to fall, owners don't undercut each other. They keep the prices high for as long as they can, because that's where they get their profits."

Out in bucolic Sausalito, California, the local Shell station today was selling regular for $4.36, premium for $4.56, according to David Labua, author of "Finding the Sweet Spot: The Insider's Guide to Parking in San Francisco." Labua, whose office is on a Sausalito tugboat, has devised his own highly novel way for combating higher fuel costs: Spending less time driving around to find a parking spot. His is a fittingly Californian solution: the driver slows down spiritually, puts aside all other distractions, and devotes his entire karma to finding parking. Readers have reported enough success that Labua is now planning editions for Boston and New York.

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