Oil Prices Tumble and Stocks Surge After Trump Announces Deal With Iran

[CapnSteve]

3. I worked in the Oil and Gas industry for 30 years...

...and I was asked many, many times: "when the price of oil falls, why doesn't the price of gas fall as well?"

The answer is surprisingly simple: The price of a barrel of oil is based on speculation - will the future price of oil increase or decrease? It is commodity traders placing bets based on nebulous, often unreliable data. Like the effect of the 39 claims that the Straight of Hormuz with open, OPEC limiting production, or predictions of a harsh winter in Europe, etc.

The price of a gallon of gas is only based on "what the market will bear." Just like any other consumer product, businesses (in this case gas stations) charge as much as they can to maximize profit. They only back off the higher price when it decreases sales. You will see local gas stations compete for customers by lowering their prices a few cents here and there.

Oil companies raised gas prices using the excuse of Trump's war on Iran. Now, "what the market will bear" has been set well over $1.50 per gallon more that before. The price of gas may come down a bit, less than 50 cents a gallon, but the new normal has been set for the market.