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If crude oil is a futures commodity, why is the price of gasoline today based on the price of oil today?
The gas delivered to the pump today was pulled from the ground weeks ago.
3 Answers
- OPMLv 71 decade agoFavorite Answer
The price of any good must be only based upon its replacement cost. When prices fall, firms take a loss on every gallon and when prices rise, firms make extra, but it compensates for the loss at other times mostly. It can be proven, but it is tedious here, that you must base the price on the cost to replace the next gallon, not the cost of the purchase of the current gallon.
- Anonymous1 decade ago
because oil is a CASH business. if a gas station does not raise its prices as soon as the price of oil goes up, it will not be able to pay for the next truck load of gasoline when it shows up
- 1 decade ago
because we get it from the same country. It is all a chain reaction. if one goes up so dose the other.
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