A quart of oil

[Bob]

OK, why is it that oil and gas prices are at rock bottom prices but does not reflect that in the grocery store. A quart of oil is still the same. I just don't get it.

[JB400]

 Gas is cheaper because it has more water in it, at least with 87 octane.  91 is still over $2 in my area.

Back on subject, yeah, oil is outrageous in price.  You might as well figure $5 or more per quart.  Trans fluid is even more than oil.

[68X426]

The reality is the "built in" price of the quart, that is the price the retailer paid for it, did not go down.  The store paid for the inventory, and the profit is zero until they sell it.  They can't lower the selling (retail) price until their cost of inventory (wholesale cost) goes down.  And the retailer never (ok very rarely) gets a rebate or any cost reduction from the wholesaler to reduce the cost, after the fact.

Example:  the quart that retails for $8.00 has a cost of $6.00 to put on the shelf (a 25% gross profit margin).  They cannot sell at the reduced $4.00 price point because the cost is still $6.00 and the retailer losses badly on the quart.  Only when the cost goes to $3.00 wholesale, making the retailer's gross profit 25% again ($3 to stock, sell for $4), then we the consumer see the benefit.  It could be months or years to work thru all the inventory in the USA.  

Any retailer who had a low level of inventory will get to the newer lower retail price sooner, and therefore sell more than their competitor.

This is just an example, lots of variables exist in every market, but is economically true most of the time.

This doesn't hold true for perishables (food) or fashion items (clothes) or novelties (toys), but always holds true for hard goods, especially when there is a near- or a complete monopoly on the good (in this instance there is no substitute for oil when you need oil, and only the oil companies make oil).

There is of course more to this subject, it is complex, and there's always exceptions, but is accurate for most all human activity.  (Let's not bring up government, socialism, regulations, fraud, price fixing, China, etc. etc., just stick to retail oil at the moment).

That's today's economic session, hope it helps.

[John_Kunkel]

It's all about the ratio of lube oil to gasoline in a barrel of crude.

http://energyalmanac.ca.gov/gasoline/whats_in_barrel_oil.html

[Bob]

Thanks John. That makes sense.

Bob