Price Inversions: What Are They And Why Do They Happen?
Occasionally, unbranded wholesale fuel becomes more expensive than its branded counterpart. This rare occurrence is known as a price inversion, which can happen in certain circumstances. To understand what a price inversion is and how it affects the fuel market, one must have basic knowledge of how the normal wholesale fuel market works. The causes of a price inversion and what it means to retailers are important factors in managing fuel costs.
The normal wholesale fuel market
What causes a price inversion?
What does a price inversion mean for fuel retailers?
How often do price inversions occur?
In 2011, a major producer in the unbranded fuel market had one of its main refineries go down unexpectedly. Simultaneously, the same producer had planned downtime at a second refinery. Another producer in the unbranded market was in the midst of transition to another kind of crude oil. These events caused the unexpected shortage of unbranded fuel.
Suppliers in surrounding states had only limited product available, causing the unbranded price of gas to start climbing quickly. Then the retailers experienced a price inversion. The situation lasted until the refining capacity started to recover and supplies loosened up.
Fuel retailers need to understand what can happen when supply and demand gets out of balance. If you want to learn more about price inversions and the impact they can have, give us a call, (806) 250-3991. The Kendrick Oil Company is happy to answer any questions you might have about our products or services. You can also reach us via email by clicking on Contact Us.