Why Gas Prices Bounce High And Low

Photo by ideastream's Brian Bull.
Photo by ideastream's Brian Bull.

Gas dipped as low as a $1.67 a gallon at some Northeast Ohio stations in the past week, but is now starting to inch up to over 2 bucks.

As to what causes this rollercoaster effect, Patrick DeHaan of GasBuddy.com says it’s called price cycling. One station lowers its prices, and others follow suit. It’s then followed by further decreases until the price nears marginal cost…which in turn spurs a price increase.

“And that’s how you can have those massive swings," says DeHaan. "It opens up the unique potential that motorists can have the gas station essentially be paying 10, 20, 30 cents of every gallon for them. And then on the flips side, when prices then spike in cycle, stations restore their profitability. And that’s a cycle that generally happens every 1 to 2 weeks although with declining wholesale prices and oil prices, it hasn’t happened in quite some time.”

DeHaan shared his insights on today’s “Sound of Ideas” show on 90.3

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