Oil is down 18% in the last 30 days. When will it be reflected in avgas pricing?

[SepticTank]

For context: I'm just a moron who wants to pay less at the pump and is complaining.

In my area, I've seen automotive gas fall by about 80 cents/gal over the past 30 days, yet avgas has remained unchanged from it's highs. I understand that avgas is made in fewer batches at more irregular intervals, but oil has now been on a 5 week decline. Are FBOs price gouging or are there market forces I'm overlooking?

 

[EdFred]

For context: I'm just a moron who wants to pay less at the pump and is complaining.

In my area, I've seen automotive gas fall by about 80 cents/gal over the past 30 days, yet avgas has remained unchanged from it's highs. I understand that avgas is made in fewer batches at more irregular intervals, but oil has now been on a 5 week decline. Are FBOs price gouging or are there market forces I'm overlooking?

They will go down when they exhaust their current inventory, and buy new inventory at a lower price. They don't (usually) speculate.

 

[Grum.Man]

Most FBO's at smaller airports barely make profit off Avgas and sell it much slower. At some airports I bet it takes several weeks to sell a tanker full. If they bought that tanker at market high, they can't really drop the price to current levels. Avgas has always lagged by several months for the reasons you stated.

On that same note, it would be kind of foolish to drop their price substantially compared to neighboring airports if they had just purchased a lower cost fresh batch.

 

[SepticTank]

Most FBO's at smaller airports barely make profit off Avgas and sell it much slower. At some airports I bet it takes several weeks to sell a tanker full. If they bought that tanker at market high, they can't really drop the price to current levels. Avgas has always lagged by several months for the reasons you stated.

Yeah I figured. I just seemed to move up much faster during the frenzy.

 

[Grum.Man]

Yeah I figured. I just seemed to move up much faster during the frenzy.

Well of course! An FBO is for profit business after all that likely still couldn't survive without government subsidies.

 

[Pilawt]

The big FBO (also the only FBO) at our airport has an "avgas club" for tenants - pay $20/month up front, get a substantial discount off the listed fuel price. They adjust the club price on the first of each month. As of July 1, the club price went down forty cents a gallon from the previous month.

At that, I'm buying 100LL for not much more than premium unleaded for my Audi at the local discount gas station.

 

[Zeldman]

Oil is down 18% in the last 30 days.

Figures. I just invested in oil...

 

[iamtheari]

Whether price gouging is a thing is probably a prohibited spin zone discussion. Hopefully we can discuss the subject without engaging in value judgments on which economic system we should impose on which portions of the overall avgas supply chain.

The question about FBO avgas pricing depends on the FBO. Some set their price when they fill the tank (so they never make “extra” profit or take a loss, they just sell it faster when the external market price goes up and slower when it goes down), some follow the external market price (which poses a business risk and corresponding potential reward). Those that bought high will be sitting on their gas for a long time if the market price goes down by 50% and they don’t accept the loss, but that’s their business decision. Large price differentials between nearby airports are uncommon but happen.

Oil pricing is, itself, a complicated system. I have a few shares in a company that went up 500% the month after I bought them because the stock market as a whole doesn’t understand how oil prices work. I’m still broke because I don’t understand the subject well enough to have risked it all on that company’s stock.

 

[LesGawlik]

It's "already in the pipeline". "There isn't a direct correlation between oil and refined products." Yada yada. That's when the price of oil is going down. However, when the price of oil is going up, none of that seems to apply. There are seconds to minutes changes in the price of gas as crude increases, because reasons.

 

[Salty]

Lots of people will try to explain why prices go down slower than up, but the bottom line is, at the very least, the person that sets the price at the pump has a vested interest in changing it quickly when prices go up, and does not when prices go down.

 

[Doug Reid]

Crude oil pricing has always been the blame for all the increases in adhesive prices that I have sold for the past 50 years. I have never seen adhesive prices go down....never.

 

[schmookeeg]

Significant discounts are also available by pulling the red or black knobs.

 

[GaryM]

It's "already in the pipeline".

We still have pipelines?

 

[Jim K]

My airport manager friend said his latest quote is down 30 cents from the previous one. He needs to sell a few hundred more gallons at the current price before he can buy more. I helped him out by buying 50. His fear is getting stuck with higher priced inventory as the price falls. Most of these small airports only change the price when they get a fresh load of fuel, which is great for us when the price is headed up, but bad when it's falling. His strategy is to split loads with neighboring airports so he doesn't have a full tanker load to sell.

He only makes a couple cents per gallon and is mainly trying to provide fuel as reasonably as possible. I think that is the strategy for a lot of small airports... reasonably priced fuel entices hangar tenants to rent there and transients to land & get the activity numbers up.

My home base on the other hand is one of the rare places that adjusts their price on a daily basis based on current prices. Unfortunately part of that calculation appears to be ~$2/gal profit. Their price is already coming down, but it's still way above anything reasonable.

 

[EdFred]

Our airport manager *claims* $0.50 markup, but when prices are stable we are always a buck-ish higher than other airports who also say they mark it up $0.50.
$7.89 vs $6.55 and $6.60

We used to be routinely the cheapest or equal in the area until he took over.

Guess where I *don't* buy my 100LL.

 

[Kenny Phillips]

It's "already in the pipeline". "There isn't a direct correlation between oil and refined products." Yada yada. That's when the price of oil is going down. However, when the price of oil is going up, none of that seems to apply. There are seconds to minutes changes in the price of gas as crude increases, because reasons.

Profit is always a good reason, to me. But look at the overall percentage of net profit from oil companies for the last decade (which will have the highs and lows evened out.)

 

[Joe_B1]

At my home field, avgas has gone from a high of $8.10 down to $7.60 so that's a good thing. Let's hope it continues!

 

[Omalley1537]

It's "already in the pipeline". "There isn't a direct correlation between oil and refined products." Yada yada. That's when the price of oil is going down. However, when the price of oil is going up, none of that seems to apply. There are seconds to minutes changes in the price of gas as crude increases, because reasons.

same applies to property taxes, at least where I live. Annual bill only went down about 400 during the 08 mess and resultant several years of lower values, but went up over 1000 after the bottom-out and first year of recovery. Again, because…reasons.

 

[Clip4]

Fuel prices are always fast to increase and slow to decrease.

 

[cowtowner]

Refiners are at max capacity, the crack spreads were at all time highs, but have started to come down a little. (Crack spread is how much the refiners make on a barrel of oil)

This is all due to the fact that refined products are being shipped to Europe, when they used to get most of it from that eastern European country.

When the refiners in the past were at capacity, we'd just import finished product. Europe is taking it all for a premium price, so the refiners are making bank........which is how the market is supposed to work.

 

[Rich Holt]

prices are always fast to increase and slow to decrease.

FIFY

 

[Chip Sylverne]

Refiners are at max capacity, the crack spreads were at all time highs, but have started to come down a little. (Crack spread is how much the refiners make on a barrel of oil)

This is all due to the fact that refined products are being shipped to Europe, when they used to get most of it from that eastern European country.

When the refiners in the past were at capacity, we'd just import finished product. Europe is taking it all for a premium price, so the refiners are making bank........which is how the market is supposed to work.

When I went to school, the way the market was supposed to work was high prices was supposed to lead to more competitors entering the market. Instead, we have refiners closing, and aging plants going without required maintenance to keep operating...and massive share buybacks.

 

[frfly172]

Gas prices always go up on a rocket and come down on a parachute. There will always be a percentage of FBOs that take advantage of the cituation.

 

[Bob Noel]

When I went to school, the way the market was supposed to work was high prices was supposed to lead to more competitors entering the market. Instead, we have refiners closing, and aging plants going without required maintenance to keep operating...and massive share buybacks.

I suspect that overlooked (or ignored or assumed) was the time scale. When prices only go up (or down) for short periods of time there isn't sufficient time for the market [edit: I mean competitors] to respond the way you are expecting.

 

[EdFred]

I suspect that overlooked (or ignored or assumed) was the time scale. When prices only go up (or down) for short periods of time there isn't sufficient time for the market to respond the way you are expecting.

It also doesn't take government penalties or discentives into account.

 

[Half Fast]

When I went to school, the way the market was supposed to work was high prices was supposed to lead to more competitors entering the market. Instead, we have refiners closing, and aging plants going without required maintenance to keep operating...and massive share buybacks.

I’m afraid that model ignores the investment cost and time (and ignores risk) needed to enter the market or make more product.

That works when you’re making simple widgets and can easily turn the production rate up or down. When you have to invest large amounts of money and several years to increase production things get a bit more complicated.

Let’s say the administration has a goal of making widgets obsolete in X years and the time required to recoup your investment in a new widget factory is 1.5X. Would you invest?

 

[iamtheari]

Let’s say the administration has a goal of making widgets obsolete in X years and the time required to recoup your investment in a new widget factory is 1.5X. Would you invest?

Also, take into account the fact that the widget futures market price has fluctuated from a low of negative $40 per widget to a high of $120 per widget in the span of 2 years, depending on things beyond anyone’s control, and your breakeven calculation is based on some degree of price stability for 1.5X years when the record longest price stability was closer to X weeks.

There is a reason my town gains and loses burrito shops every time the price of oil goes up or down, but we are steady at 0 refineries.

 

[Chip Sylverne]

I’m afraid that model ignores the investment cost and time (and ignores risk) needed to enter the market or make more product.

That works when you’re making simple widgets and can easily turn the production rate up or down. When you have to invest large amounts of money and several years to increase production things get a bit more complicated.

Let’s say the administration has a goal of making widgets obsolete in X years and the time required to recoup your investment in a new widget factory is 1.5X. Would you invest?

No question there are huge barriers to entry to the refining industry, but having said that, five refining plants have been shut down in the last few years due to lack of investment in maintenance, steel pipe etc. Big difference between creating a new entry, or merely decreasing capacity and distributing profits to shareholders rather than investing in plant and equipment. I understand that's the firm's goal, maximization of profits, and it's easy to do with only a handful of firms in the space.
On the other hand, I'm not happy paying the price.
Are you happy

 

[masloki]

same applies to property taxes, at least where I live. Annual bill only went down about 400 during the 08 mess and resultant several years of lower values, but went up over 1000 after the bottom-out and first year of recovery. Again, because…reasons.

Oh this one I dug into for the same reason. Your assessment may change year to year, but so does the tax rate. School, fire, public works, etc budgets are relatively static. Cut the tax revenues in half and you are talking layoffs. So, if property values drop 20% YoY, they adjusted the rate upwards to offset.

 

[Pinecone]

Also, the FBO pays for the load of fuel when it is delivered.

So even if they have fuel they paid less for, they need to raise the price to be able to pay the price of the next load and still turn on the lights, eat, etc.

You have 1000 gallons at $4 per gallon. You sell for $4.50, you earn a gross of $4500 (profit of $500). Next load is coming in at $5 per gallon, so you have to come up with $5000 to pay for it, and then hope you can sell it at $5.50 per gallon for the whole 1000 gallons.

A fine line of balance.

 

[chemgeek]

Our airport manager *claims* $0.50 markup, but when prices are stable we are always a buck-ish higher than other airports who also say they mark it up $0.50.
$7.89 vs $6.55 and $6.60

We used to be routinely the cheapest or equal in the area until he took over.

Guess where I *don't* buy my 100LL.

Not every airport gets the same delivery price. If you don't have high capacity tanks and can't take a full load, you pay extra. It also depends on who your distributor is, or which one is delivering your load. And when you receive your load, as prices change frequently. Our airport has a simple fixed markup policy, but I'm sure there are always those who are convinced there is a vast conspiracy involved in price-setting to their disadvantage. We do our best to keep prices as low as possible while maintaining an adequate income stream to maintain the airport.

 

[chemgeek]

In my area, I've seen automotive gas fall by about 80 cents/gal over the past 30 days, yet avgas has remained unchanged from it's highs. I understand that avgas is made in fewer batches at more irregular intervals, but oil has now been on a 5 week decline. Are FBOs price gouging or are there market forces I'm overlooking?

Avgas is a low-volume commodity. Your current load was possibly refined as much as 6 months ago. This creates challenging pricing issues for a commodity where the raw materials change price rapidly while the end product is made infrequently in large batches. Because of the slow production cycle for avgas, the pricing pressure from production costs is not going to be as elastic as for a high turnover product like gasoline. Patience. Prices will eventually respond. Many airports, like ours, have a fixed markup on avgas based on the load price. Load pricing is based on supply/demand pressures as well as production costs.

 

[Jim K]

Not every airport gets the same delivery price. If you don't have high capacity tanks and can't take a full load, you pay extra. It also depends on who your distributor is, or which one is delivering your load. And when you receive your load, as prices change frequently. Our airport has a simple fixed markup policy, but I'm sure there are always those who are convinced there is a vast conspiracy involved in price-setting to their disadvantage. We do our best to keep prices as low as possible while maintaining an adequate income stream to maintain the airport.

My friend also mentioned that the freight from the terminal is a large part of the price, especially now. He sometimes splits loads with an airport 20 miles away, but they have to pay another 20 cents in freight because they're just on the other side of the distance ring.

 

[Todd82]

Alot of smallish FBO's around here went up alot slower than the pump price for cars. Some even were posting on their social media pages and pilot rumor mills warning pilots when their next truck was coming and that it was going to have to spike then. So now it will take the next truck again.

 

[NealRomeoGolf]

No question there are huge barriers to entry to the refining industry, but having said that, five refining plants have been shut down in the last few years due to lack of investment in maintenance, steel pipe etc. Big difference between creating a new entry, or merely decreasing capacity and distributing profits to shareholders rather than investing in plant and equipment. I understand that's the firm's goal, maximization of profits, and it's easy to do with only a handful of firms in the space.
On the other hand, I'm not happy paying the price.
Are you happy

You're welcome to go build your own refinery. You can lure my dad out of retirement to design it for you.

 

[EdFred]

Not every airport gets the same delivery price. If you don't have high capacity tanks and can't take a full load, you pay extra. It also depends on who your distributor is, or which one is delivering your load. And when you receive your load, as prices change frequently. Our airport has a simple fixed markup policy, but I'm sure there are always those who are convinced there is a vast conspiracy involved in price-setting to their disadvantage. We do our best to keep prices as low as possible while maintaining an adequate income stream to maintain the airport.

We have the high cap tanks, and even when prices were unchanged for months on end we were always higher. Same distributor. It was $0.50 markup before he was manager, and somehow we w ent from $0.50 cheapest in the area to more than Signature. Yeah, Signature. He's either the single most incompetent fuel purchaser, or flat out lying about $0.50 markup. It ain't a $2 difference in delivery or a spike when the prices stayed un changed for 6 to 8 months at a time. It was this way when Trump and Obama were in office. Nothing to do with recent craziness.

 

[Roger Wyatt]

Yeah I figured. I just seemed to move up much faster during the frenzy.

It moves up faster, because they have to have the money to buy more when their tank runs out. If they didn’t raise their prices now, they couldn’t afford the fuel that is already selling at a high price. When the price drops, they don’t follow it as fast because they would be selling at a loss based on the price they paid for the fuel in their tank.


Sent from my iPhone using Tapatalk

 

[schmookeeg]

We have the high cap tanks, and even when prices were unchanged for months on end we were always higher. Same distributor. It was $0.50 markup before he was manager, and somehow we w ent from $0.50 cheapest in the area to more than Signature. Yeah, Signature. He's either the single most incompetent fuel purchaser, or flat out lying about $0.50 markup. It ain't a $2 difference in delivery or a spike when the prices stayed un changed for 6 to 8 months at a time. It was this way when Trump and Obama were in office. Nothing to do with recent craziness.

The prices from our jobber came out weekly (Tuesday I think?) -- If I wanted to prove shenanigans, I'd befriend a nearby airport FBO that sells the same brand of avgas -- and hit them up for their delivered prices. Often times it's not a secret (particularly if fuel is not their main business) and you can get the weekly number out of the desk girl.

We got a fax. I think near the very end of our FBO reign (ugh almost 10 years ago now), it switched to email. I bet you could develop an information network of forwarded emails pretty easily and shame your local scalawag. Probably only for the price of a kind word and flirtatious smile.

 

[PaulMillner]

Your current load was possibly refined as much as 6 months ago.

I think that's irrelevant. A refiner either resigns themselves to market effects, or hedges them. In either case, product being delivered out the refinery gate today is typically contract priced off of today's spot or contract pricing... no one cares about what happens to inventory value inside the refinery fence, except for the LIFO accountants.

Paul

 

[cowtowner]

When I went to school, the way the market was supposed to work was high prices was supposed to lead to more competitors entering the market. Instead, we have refiners closing, and aging plants going without required maintenance to keep operating...and massive share buybacks.

Sure, and it has worked that way. More refineries are being built, just not in the USA because of Government intervention. It is nearly impossible to get the permits here to build a refinery, so the market works and companies (and countries) build refineries in places the regulations aren't nearly as strict.

Same happened in Europe.

The US and Europe are not getting rid of pollution, we just offshore it to places in the Middle East, Africa, Russia and China.