Oil goes up 20%. Gas goes up over 20%.
Oil drops 20% and gas prices barely come down.
What do you call it? Should we just call it greed?
Let's go through an exercise (with some simplification to make it shorter):
Let's assume the gas station owner sells on average 10,000 gallons of gasoline per week.
Wholesale gasoline goes up 20%. Average American fills up, begrudges how much they paid for the fill-up and move on.
They come back a week later and see that prices at the pump are still high, maybe they fill only half a tank, or maybe they fill up, but they decide to cut down on driving as the fill-ups are eating into their disposable income.
This isn't just one driver, but the result is that the next time the station owner fills up his 10,000 gallon tanks he discovers that he only sold 8,000 gallons in the past week. So he still has 20% of his inventory for which he paid the old price, and 80% for the new price. If this new price is higher, then he is forced to sell for even higher, resulting in additional marginal drop-off in sales. If it is lower, can he lower the price to the current price?
Let's assume that the station owner managed to sell at a slightly lower price than the peak price? Will the lost demand come back right away? Or will some say to themselves "we've learned how to drive less, maybe we can keep that going even if gas prices are slightly down"?
And then when wholesale prices go back up, what happens?
You think any of this isn't real:
https://twitter.com/DiMartinoBooth/status/1508085764306968584There's no way to slice it differently. High prices (be it the price of commodities, or the price of money) curb demand (sooner or later) and bring prices down to an equilibrium (with a tendency to overshoot).
