>>Then why is it that the price went up RIGHT AWAY????? As I've always understood the futures market, you place an order today at a price you believe will make you money WHEN THAT DATE COMES. In other words, you have a contract to get so much of a commodity at a set price on a given date and it is your expectation that the commodity will be selling for more than you paid for it on the date you sell it.
>If oil goes up to $70. per barrell based on some future price, why would I see the impact today???
>And, in fact, the price of oil did not rise, world-price wise, in proportion to what the cost at the pumps rose. So there definitely was something amiss.
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>Here's what I've read. Gas stations have in there current inventory fuel that they bought for $1.00 wholesale per gallon and they would normally resale it for about $1.10 or little more. But once they hear news of a price increase to $1.50 wholesale, they'll raise the price of that same inventory to about $1.65 so they'll have enough cash to buy the next batch of fuel which is scheduled to cost them about $1.50 per gallon.
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>That's why we feel the effect almost immediately.

That's interesting, Sam. It has the following considerations:
1) It lets the oil companies off the hook.
--- They can claim gas stations have independent owners over who they have no control.
2) It would be the only business which regularly operates that way!
--- Most businesses price products based on cost of purchase, not potential cost of future purchases. Most business make their profit AFTER they sell a product, not before they buy it. And yes, lots of businesses have the same pressure of widely fluctuating prices.
3) Why was there an 'anticipated' huge increase post-Katrina when the cost of raw oil rose only marginally? The word gouging comes to mind.
4) I don't think we saw prices go below cost once they settled back down. Woudn't that be the logical extension of what you describe as the problem, if it was to actually make sense?