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Author Topic: Get Free Gas by simple correlation on prices.  (Read 4911 times)
wb3
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April 13, 2011, 07:27:00 PM
 #41

For going the individual method.

I will give you a for example:

In the U.S.:

If a gas station fills his underground tank with 10,000 gallons of gas that he bought at $1 a gallon.

Now assume he sells no gas for a month.

Then Gas goes up to $2 a gallon from his supplier.

The Gas that he has in his tank that he bought at $1 a gallon, can not be sold at the $2 price point.

He will have to sell his gas at the $1 rate plus agreed upon mark up until he sells 10,000 gallons. Then he can raise prices. There is an averaging that is allowed, if he receives a delivery before he sells the 10,000 gallons. This is kind of allowing the mixing of fiduciary funds in an insurance account. Most avoid it in case someone complains of gouging.

You can usually see this in work if your town has a lot of gas stations, especially recently with big changes happening fast.

You should have seen one station with several cents difference, some high, some low.  Why does this happen? If it worked as you said, the prices among stations should always be close to each other.



How come gas stations change prices daily?  I know they aren't getting tankers delivering daily.

Gas stations near each other almost always have similar prices where I live.  Occasionally one might be slow to change, and a better "brand" is going to be at a small premium.

If the gas station is changing prices hourly or daily, one of two things is happening:

They are supplied by a pipeline from a central supplier (usually the hourly change), or they are averaging their gas based on delivery)

For example:

In his 10,000 gallon tank, he bought 2,000 at one point, 2,000 at another, etc... So when he hits each point bought he can raise the price.

It is easy for inspectors to check also, buy purchase receipts and sales receipts.

Now, what some nefarious stations do, is to tweak their pumps to hit those points faster. But that is risky if they decide to "stick" the tank. But there is alway a difference due to water condensation. But it is pretty much down to a science.

A less risky method in "old" tanks is to add water to the Tank. New tanks have electronics to detect it.(but they do break).

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wb3
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April 13, 2011, 07:31:05 PM
 #42

New Jersey is very strict on enforcement. They have a Weights and Measure Office that inspect all of it. But New Jersey being New Jersey, those inspectors usually drive Mercedes, if you get my meaning.

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April 13, 2011, 07:34:27 PM
 #43

The Leegin case may be interesting to some of you.  The Supreme Court recently upheld contract clauses between manufacturers and retailers that mandated minimum prices:

http://blogs.wsj.com/law/2008/08/18/the-legacy-of-leegin-price-fixing-the-comeback-kid-of-antitrust-law/

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April 13, 2011, 07:49:07 PM
 #44

The Leegin case may be interesting to some of you.  The Supreme Court recent upheld contract clauses between manufacturers and retailers that mandated minimum prices:

http://blogs.wsj.com/law/2008/08/18/the-legacy-of-leegin-price-fixing-the-comeback-kid-of-antitrust-law/

Good find, that is what they do.

It is still illegal for them to get together and determine minimum prices. BP, Exxon, Shell, etc.. can't together determine the minimum price for their franchisees.  But that doesn't stop them.  Technically the one producing more should have a lessor price but they don't.

What they do is sort of follow the law. They can't ask each other what their minimums are, but if they overhear it by a non-executive, or get it from a survey, that is perfectly legal.  Guess what gets surveyed every day at almost every gas station in America. Yep the price of Gas and they share that survey with everyone. But that isn't the real problem, the real problem is the agreed upon mark ups for stations.

Which between stations is almost identical.  Exxon-Mobile should let their franchisee's have a bigger mark up but they don't. By adding the NDA to the agreements they even keep stations from confirming.

So every once in a while there will be a Conference where industry professionals will "over hear" the others mark-up agreements. Technically perfectly legal, and very hard to prove collusion.

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April 13, 2011, 09:47:32 PM
 #45

The Leegin case may be interesting to some of you.  The Supreme Court recent upheld contract clauses between manufacturers and retailers that mandated minimum prices:

http://blogs.wsj.com/law/2008/08/18/the-legacy-of-leegin-price-fixing-the-comeback-kid-of-antitrust-law/

Good find, that is what they do.

It is still illegal for them to get together and determine minimum prices. BP, Exxon, Shell, etc.. can't together determine the minimum price for their franchisees.  But that doesn't stop them.  Technically the one producing more should have a lessor price but they don't.

What they do is sort of follow the law. They can't ask each other what their minimums are, but if they overhear it by a non-executive, or get it from a survey, that is perfectly legal.  Guess what gets surveyed every day at almost every gas station in America. Yep the price of Gas and they share that survey with everyone. But that isn't the real problem, the real problem is the agreed upon mark ups for stations.

Which between stations is almost identical.  Exxon-Mobile should let their franchisee's have a bigger mark up but they don't. By adding the NDA to the agreements they even keep stations from confirming.

So every once in a while there will be a Conference where industry professionals will "over hear" the others mark-up agreements. Technically perfectly legal, and very hard to prove collusion.

Why do you keep bringing up minimums?  You are talking about taking advantage of them having maximum prices.

Why would someone producing more of something charge less?  Another economics assumption you are making?
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April 13, 2011, 10:31:46 PM
 #46

Quote
Why do you keep bringing up minimums?  You are talking about taking advantage of them having maximum prices.

Why would someone producing more of something charge less?  Another economics assumption you are making?


Ok, this shouldn't come as a surprise to many. But if one is in a better position, financially, you can run your competition out of business by taking a loss over time. It is done all the time. Without collusion, it is simplistic and effective. Once you run out the competition you recoup your losses. By agreeing to minimums, they try to prevent this from happening.

With collusion, it can be devastating.

Station A subsidizes Station B to undercut Station C.  Station C being independent, can't compete. When Station C goes out of business, Station B reimburses Station A.



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April 13, 2011, 11:39:57 PM
 #47

Quote
Why do you keep bringing up minimums?  You are talking about taking advantage of them having maximum prices.

Why would someone producing more of something charge less?  Another economics assumption you are making?


Ok, this shouldn't come as a surprise to many. But if one is in a better position, financially, you can run your competition out of business by taking a loss over time. It is done all the time. Without collusion, it is simplistic and effective. Once you run out the competition you recoup your losses. By agreeing to minimums, they try to prevent this from happening.

With collusion, it can be devastating.

Station A subsidizes Station B to undercut Station C.  Station C being independent, can't compete. When Station C goes out of business, Station B reimburses Station A.




And then when you raise your prices back up, competition sweeps in and you get crushed again.  It's a terrible way to run a business unless you have artificial barriers to entry.  Who cares if they drive prices low?

Again, this goes back to your claim that it takes 30-60 days for increases in the price of oil to hit the pump.  What does this have to do with minimum prices or artificially low prices?
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April 13, 2011, 11:55:56 PM
 #48

Alright, let just prove it with a few days.

Prices have dropped in the futures market, but prices will continue to go up at the pump for about another 20 days, before they start to fall again.

It is the TTM, that you can take advantage of.


As for the other, dude, businesses run like that for a long time. And once a competitor is run out, there are barriers for re-entry. Especially for independents. They just saw what happen to the previous guy. If you don't come with moola, your toast.



The whole point is that you can take advantage of the TTM in the Gasoline.  There is a corelation between Futures, Spot, TTM, and local gas prices.

Of course you only do it when you see the Futures going up, not down. But the lag in TTM is enough to solidify your position.

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tomcollins
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April 14, 2011, 12:21:15 AM
 #49

Alright, let just prove it with a few days.

Prices have dropped in the futures market, but prices will continue to go up at the pump for about another 20 days, before they start to fall again.

It is the TTM, that you can take advantage of.


As for the other, dude, businesses run like that for a long time. And once a competitor is run out, there are barriers for re-entry. Especially for independents. They just saw what happen to the previous guy. If you don't come with moola, your toast.



The whole point is that you can take advantage of the TTM in the Gasoline.  There is a corelation between Futures, Spot, TTM, and local gas prices.

Of course you only do it when you see the Futures going up, not down. But the lag in TTM is enough to solidify your position.


Or you could just backtest your theory and realize it fails miserably.  Oil tends to be more extreme in its movements (people cut back on driving which keeps the gas price from going up too much).  Peaks and valleys happen nearly simultaneously.

But good luck on your underground bomb.
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April 14, 2011, 12:38:30 AM
 #50

Nice try, but you forgot Oil Futures. Just a sec, I will post the link to the overlay. Between Gas and Futures.

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April 14, 2011, 12:42:13 AM
 #51

Nice try, but you forgot Oil Futures. Just a sec, I will post the link to the overlay. Between Gas and Futures.

No, that is futures.
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April 14, 2011, 12:45:00 AM
 #52

Just a sec let me use Gasbuddy to confirm it isn't Spot.

Here is some reading : http://www.oilwatchdog.org/2009/01/why-gas-rises-while-oil-drops/

I am also signing into TD ameritrade to generate the back test.

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wb3
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April 14, 2011, 01:58:42 AM
 #53

I have got to do some research. I don't know what they used. Their site doesn't post it but I can't find a comparison yet. I am assuming they used WTI or CL (Light Sweet Crude) or maybe averaged all together. I usually deal with Bar Charts and Trend lines, not the simple graphics.

I will do a good overlay with the offset trend lines for Avg. Gas Regular, Diesel, Futures, Spot, Strategic Reserves, and Private Reserves.

I haven't needed to generate it for awhile but I will set it up. Most of it is almost routine, now.

Ever since we hit Peak Oil, it is just going off of the numbers, baring any future reserve discovery. The lag gives enough time to correct.

The math predicts the ups and downs as a upward inclining plateau until the final down trend, which everyone will know when that happens. It falls like a rock.

Love Oil, an un-renewable resource, in demand, and declining supply, with EI:EO ratio increasing to greater than 1.  So simple a caveman can do it.  Grin


I will post it tomorrow.


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