Dear Doc:

Now at $8 per gallon, on sale.

It isn't just production, but "formulation", volumes, handling,
shipping, and advertising.  These things will be much less sensitive
to increases in the costs of crude oil.

Besides, no one will get rich tripling the cost of lubricating oil,
but will stand a good chance of losing that business.

Now ask the same question about heating oil...

David A. Smith

In the 5-1/2 years since we moved here, I believe the lowest price I saw
for gasoline was $1.449.

It wasn't that long ago that Walmart went from 97 cents per quart of
Pennzoil to $1.68 or thereabouts, overnight, and everyone else nearly
instantly raised prices to match.

OK, Take this with a grain of salt....

While there is some leeway in the products the mix of products
is pretty well fixed, that is after the distillation process
what is not product is byproduct.  If the demand for the various
products/byproducts don't match their production then an increase
in demand for a product will be followed by an increase in production
but this pushes the supply of the byproduct and thereby lowers it
market value.

Well, taking a longer term look, when I was a teenager working in a
gas station, oil was 35 cents a quart, gasoline was 35 cents a
gallon.  There has been a factor of ten in inflation since those days,
and that would make oil $3.50 cents a quart. gas that same price per
gallon.  Looks like neither has kept up with inflation :-)

A quart of oil costs whatever the market for quarts of oil will bear.

Because of the way they rationalize purchase decisions, consumers are
willing to pay more for something which is rarely purchased.

Consumers are simply not that sensitive to paying a lot for more for a
given quantity of motor oil compared to the same quantity of gasoline.

This makes sense: how much do you spend, in total, on motor oil every
year compared to gasoline? If motor oil were to increase 50% in price,
how would it affect your bottom line compared to a similar increase in
the price of gasoline?

So of course you get ripped off at the retail level, where you are
buying dinky quantities like quarts and gallons.

The oil change shops that buy the 55 gallon drums also get similarly
gouged, because their suppliers know that these shops are running a
rip-off business, and they rightfully want a piece of that consumer-
fleecing action. If the suppliers charged the lube businesses less for
oil, the oil changers would still charge some $20 to $30 for an oil
change, and just pocket more profit. The average driver who either
doesn't know how to change his own oil, nor wants to expects to pay
about that much.

So you see, they get you whether or not you're a do-it-yourselfer.

Also, look at this:

http://en.wikipedia.org/wiki/Price_elasticity_of_demand

The demand for lubricating oil and gasoline is relatively inelastic,
since they are necessary and have no substitute. If you don't change
your oil, and don't put in gas, you don't move.

This means that the demand doesn't respond to price changes.

People grumble, but they pump and drive anyway.

The examkle with salt is also relevant ``Demand for salt, for
instance, at its modern levels of supply is highly inelastic not
because it is a necessity but because it is such a small part of the
household budget.''  Similarly, motor oil is a small part of your
transportation budget, in addition to being a necessity, like
gasoline. So it is less elastic than gasoline and consequently costs
more.

Yes, it has gone up, but not in proportion to crude-oil prices. (And
one still occasionally sees substantially sub-dollar after-rebate
prices for quarts of motor oil at retail, plus or minus the
conventional wisdom that only about half of eligible consumer rebates
get sent in, approved, and fulfilled.)

I suspect that the reasons are
(a) petroleum is a much more distant ancestor of motor oil than of
gas, i.e., a lot more chemical processing occurs even in non-synthetic
oils, making it less sensitive to crude oil prices;
and
(b) the cost  is much more dominated by packaging and shipping
(colorful little quart bottles of many different brands competing for
shelf space is the very picture of inefficient distribution, whereas
gasoline is handled and sold more as a bulk commodity).

I've also read that
(c) retail motor oil at discount-store prices, say around a buck a
quart, is usually a "loss leader" or at least an almost zero margin
item offered at an artifically low price -- and located near the back
of the store so you have to run a gauntlet of higher-margin
temptations  to get at it.  At the other extreme, the prices of motor
oil at gas stations and grocery stores run more toward  the "you need
it, we got it, you know it, and we know you know it" category.  A cost-
plus-slight-profit price would be somewhere in between.  But I am less
sure of this point.

--Joe

 No they're as different as Africa is from Australia.
 The final step in refining gasoline is ALWAYS some place in
Calitucky.
 The final step in refining 10W-30 is ALWAYS  Wal-Mart.