Dear people who filled up a dozen or more five-gallon cans with gasoline - or filled plastic plastic household tub-storage containers (that, too) or plain buckets - please permit me to give a lesson in commodity economics.
Yes, gasoline is a commodity. Its pricing is based on demand, actually, more on anticipated demand than present demand. Gasoline and other petroleum products are traded on worldwide exchanges. Prices on these "spot markets" can be very volatile.
Like all commodities, pump prices of gasoline are set according to anticipated replacement cost. When the spot-market price rises, gas stations raise pump prices. You may not realize it but the pump price includes not much profit for the station, so they have to get enough revenue from each delivery to pay for the next one.
While gasoline has its own spot market, raw petroleum is far more widely traded because it is the source, of course, of gasoline to begin with. Contrary to what you must have thought, the rise in fuel prices the past week was not due to the shutdown of the Colonial Pipeline. It was because petroleum spot market prices went sharply upward. Here is the five-day graph:
This is the chart for the June 21 closing contract. It is a "futures" contract, as is typical of commodities. This means that the contract closes on June 21 and whoever still owns a bid on it better have a place to put 100,000 barrels of oil. And the money to pay for it. At today's price that would be $6,379,000.
Note that about noon yesterday, a high price was reached for the last several days, actually the high since May 5, which was before the pipeline shutdown. Since then, gasoline prices have risen because of the spot price of petroleum rose, not because of Colonial's pipeline problems and not because you panic buyers and hoarders started filling up every container you could with gas.
And now, merely coincidentally with Colonial starting the pipeline again, oil and gasoline prices are falling - more than four percent since noon yesterday.
There is now no market for all those five-gallon cans full of over-priced gas that you were planning to sell later for what, 10 bucks per gallon or more? So while everyone else is driving around on much cheaper gas, you will have to use those cans, full of over-market-priced gas, to power your own car or truck. You can't let it sit because gasoline "spoils" after several weeks, actually starts to oxidize just sitting there. "Oxidize" is how fuel chemists say "burns." That's right, gasoline will start on it own to react to the oxygen in the air, and will over time be significantly degraded as an engine fuel.
So you will literally have to burn money by using that high-priced gas. Without knowing it, you took a mini-course in commodities trading. And lost, big time.
Please make sure the lesson sticks!
End on a humor break:
