yet another oil price question

jon1981

ok whats the story,

a garage buys so many litres of oil at X cost. the price goes up the very next day and they raise the cost there and then yet having stock they bought at X the day before.

the price goes down, are they as quick to bring the price down? no is the answer...is this regulated?

ART6

That is the question for anyone who stocks something for later sale. Does he base his mark up on the buying in price, the average price, or the stock replacement price? If he bases it on the purchase price when wholesale prices are rising rapidly, then he is going to take a big hit when he re-orders. If he continues to do that he will take another big hit with every new order. Generally he'd be wise to charge on the replacement cost because he is dealing with a high value commodity when he has no way of knowing what the next days will bring. If the wholesale value goes down he makes extra money to cover the lean periods when he misjudged how prices were going to climb.

It's all a balancing act with big bucks involved and the penalty for getting it wrong is bankruptcy. In my days in the motor trade we always used replacement cost for everything -- spares, fuels, the lot.

L1011

To make it more complicated, franchise dealers don't always pay for the stock they have in a conventional way, there's rebates and similar to make it far more complicated.