Yes, I’m Angry About Gas Prices Too
Like so many Americans, my blood pressure rises every time I fill up my gas tank. The numbers indicating the price spin faster as the numbers indicating the number of gallons seems to be spinning much slower and I get angry. I’m Angry because my cost of living continues to increase while my income remains the same. Don’t mess with me when I’m filling my tank!
Unlike so many Americans however, my anger is directed mostly at the environmental extremist greenie-weenies, the politicians who pander to them, an American public that is largely economically illiterate, and the politicians/interest groups who exploit this illiteracy. Many Americans attribute blame to the ‘greedy BIG OIL companies’ because they are such a convenient target. Donald Trump even commented that the BIG OIL companies where exploiting the Hurricane Katrina disaster to raise prices on crude. It’s “as simple as that” Trump said. How could someone of such wealth be so economically ignorant?
Here is a simple economics lesson that everyone should know but apparently does not: supply and demand (I can’t believe I have to explain this to anyone; this is freshman high school economics 101 stuff). The more plentiful the ‘supply’ of a good or service and lower the demand of that good or service, the lower the price. As supplies become more scarce and the ‘demands’ increase, so does the price. That is what is happening with gas prices.
Based on the law of supply and demand let’s take a look at what is happening in the petroleum industry. Government environmental regulations prevent oil companies from exploring new promising deposits of oil. Among these finds are ANWR, off the coast of California, and off the coast of Florida – all these locations have great potential to increase the ‘supply’ of crude oil, yet increased drilling in these locations are off-limits thanks to the federal government. Therefore, the future supply of crude oil is decreased. Result: prices increase.
The second supply item to consider is refining capacity. Environmental regulations make it incredibly difficult to build a refinery anywhere in America. The refining capacity is not what it should be to meet the demands for gasoline. Again, with the increased demand, and limited supply the prices are raised.
The third item to consider is that much of the oil we import is from countries which do not like us all that much. OPEC has a great deal of influence in the price of crude. When something happens in the Arab world that causes instability, (such as the Iraq invasion of Kuwait in 1991) the future supply of oil is in jeopardy. People who buy oil futures do not like uncertainty, therefore the price is raised.
On the demand side of the equation, we have to look at…well the demand. Consider that there are now 2 automobiles for every American. Consider that more Americans have moved to the suburbs and drive more than ever. Consider that India and China (both with very large populations) are demanding more fossil fuels. What happens when demand increases and supplies decrease? You guessed it, the price increases. What is so hard to understand here?
Hurricane Katrina made all these matters that much worse. Offshore rigs had to be abandoned, refineries had to be evacuated, and major ports were inaccessible to foreign oil. Until these things are operational again, the future supply is decreased that much more. “It’s as simple as that” to quote Donald Trump.
I recently received a chain e-mail petition that was supposed to be sent to President Bush to lower the gas prices. There were already over 100 signatures on the petition; I wasn’t sure if I should laugh or cry. What is the president supposed to do, call his buddies in the oil business and tell them to lower the price as the loony leftsists and Michael Moore Fans (wouldn’t the proper term for Michael Moore fans be ‘Mooreons’?) would have you believe? Let’s get real.
I know, price controls! We’ll just have the government tell these greedy, price gouging oil companies the maximum price they can charge for a gallon of gas. That’ll show ‘em. Never mind the fact that gas stations must charge more in order to buy more gas at an increased price to maintain their current profit margin. How dare a company profit from a commodity everyone needs! Screw ‘em. While we are at it, we can have the government set the price for every commodity or service businesses sell. Because making money is such an evil thing, maybe we can ask the government to set a ‘maximum wage’ as well as the minimum wage for all Americans. Doesn’t that sound like a great idea? It worked so well in the Soviet Union!
So having the president speed-dial his oil buddies is out, price controls are out… so what can the government do? At a minimum, government needs to allow the free market to work. No act of congress can repeal the law of supply and demand any more than can congress repeal the law of gravity. If the governments (federal, state, local) really want to ‘do something’ to lower gas prices, they can temporarily remove their taxes which is calculated into the final price. In the long term, government needs to open ANWR and other restricted areas for oil exploration to increase the supply (and thus lower the price).
If the tone of this post seems to be one of anger, it is because I am angry. The longer we continue to want to have it both ways (want to be independent of foreign oil but not willing to drill for oil domestically), blame BIG OIL for everything, and continue in our ignorance of the very basic economic principle of supply and demand, we will continue to support policies and politicians who will make us even more dependant on foreign oil. The result of this increased dependence will be even higher prices and even more angry people asking the ignorant question: “Why are gas prices so high?”
Related Posts by Others:
The Price Gouging Myth by Robert Bell
You can't call it anything else by Perry Eidelbus
Price Gouging, Oil, and Gasoline by INDIVID
Unlike so many Americans however, my anger is directed mostly at the environmental extremist greenie-weenies, the politicians who pander to them, an American public that is largely economically illiterate, and the politicians/interest groups who exploit this illiteracy. Many Americans attribute blame to the ‘greedy BIG OIL companies’ because they are such a convenient target. Donald Trump even commented that the BIG OIL companies where exploiting the Hurricane Katrina disaster to raise prices on crude. It’s “as simple as that” Trump said. How could someone of such wealth be so economically ignorant?
Here is a simple economics lesson that everyone should know but apparently does not: supply and demand (I can’t believe I have to explain this to anyone; this is freshman high school economics 101 stuff). The more plentiful the ‘supply’ of a good or service and lower the demand of that good or service, the lower the price. As supplies become more scarce and the ‘demands’ increase, so does the price. That is what is happening with gas prices.
Based on the law of supply and demand let’s take a look at what is happening in the petroleum industry. Government environmental regulations prevent oil companies from exploring new promising deposits of oil. Among these finds are ANWR, off the coast of California, and off the coast of Florida – all these locations have great potential to increase the ‘supply’ of crude oil, yet increased drilling in these locations are off-limits thanks to the federal government. Therefore, the future supply of crude oil is decreased. Result: prices increase.
The second supply item to consider is refining capacity. Environmental regulations make it incredibly difficult to build a refinery anywhere in America. The refining capacity is not what it should be to meet the demands for gasoline. Again, with the increased demand, and limited supply the prices are raised.
The third item to consider is that much of the oil we import is from countries which do not like us all that much. OPEC has a great deal of influence in the price of crude. When something happens in the Arab world that causes instability, (such as the Iraq invasion of Kuwait in 1991) the future supply of oil is in jeopardy. People who buy oil futures do not like uncertainty, therefore the price is raised.
On the demand side of the equation, we have to look at…well the demand. Consider that there are now 2 automobiles for every American. Consider that more Americans have moved to the suburbs and drive more than ever. Consider that India and China (both with very large populations) are demanding more fossil fuels. What happens when demand increases and supplies decrease? You guessed it, the price increases. What is so hard to understand here?
Hurricane Katrina made all these matters that much worse. Offshore rigs had to be abandoned, refineries had to be evacuated, and major ports were inaccessible to foreign oil. Until these things are operational again, the future supply is decreased that much more. “It’s as simple as that” to quote Donald Trump.
I recently received a chain e-mail petition that was supposed to be sent to President Bush to lower the gas prices. There were already over 100 signatures on the petition; I wasn’t sure if I should laugh or cry. What is the president supposed to do, call his buddies in the oil business and tell them to lower the price as the loony leftsists and Michael Moore Fans (wouldn’t the proper term for Michael Moore fans be ‘Mooreons’?) would have you believe? Let’s get real.
I know, price controls! We’ll just have the government tell these greedy, price gouging oil companies the maximum price they can charge for a gallon of gas. That’ll show ‘em. Never mind the fact that gas stations must charge more in order to buy more gas at an increased price to maintain their current profit margin. How dare a company profit from a commodity everyone needs! Screw ‘em. While we are at it, we can have the government set the price for every commodity or service businesses sell. Because making money is such an evil thing, maybe we can ask the government to set a ‘maximum wage’ as well as the minimum wage for all Americans. Doesn’t that sound like a great idea? It worked so well in the Soviet Union!
So having the president speed-dial his oil buddies is out, price controls are out… so what can the government do? At a minimum, government needs to allow the free market to work. No act of congress can repeal the law of supply and demand any more than can congress repeal the law of gravity. If the governments (federal, state, local) really want to ‘do something’ to lower gas prices, they can temporarily remove their taxes which is calculated into the final price. In the long term, government needs to open ANWR and other restricted areas for oil exploration to increase the supply (and thus lower the price).
If the tone of this post seems to be one of anger, it is because I am angry. The longer we continue to want to have it both ways (want to be independent of foreign oil but not willing to drill for oil domestically), blame BIG OIL for everything, and continue in our ignorance of the very basic economic principle of supply and demand, we will continue to support policies and politicians who will make us even more dependant on foreign oil. The result of this increased dependence will be even higher prices and even more angry people asking the ignorant question: “Why are gas prices so high?”
Related Posts by Others:
The Price Gouging Myth by Robert Bell
You can't call it anything else by Perry Eidelbus
Price Gouging, Oil, and Gasoline by INDIVID
posted by Stephen Littau at 12:33 PM
9 Comments:
Bob:
“Yes its true that enviormental issues prevent much of the oil Drilling and refinement in the US, BUT, the Gas Companies are still gouging and taking advantage of currebt events and those problems to line their Allready overflowing pockets.”
What would your definition of ‘gouging’ be and what is your evidence this is taking place? Who gets to decide how much profit a company is ‘allowed’ to have?
According to the U.S. Department of Energy, in 2003 “refining costs & profits” made up for only 15% of the price of a gallon of gasoline. Unfortunatley, DOE did not break that figure down any further (how much of the 15% is profit and how much is refining costs?). In any event, based on this data, profits make up less than 15%. We could probably safeley guess that refining costs make up 5% and the profits make up 10%. Is a 10 – 14% profit gouging? 10 -14% seems reasonable to me but reasonable persons can disagree on this.
As to the rest of the price of gas? Reading from the same data, 44% is attributed to the price of crude oil, 27% Federal & State Taxes (maybe the government is gouging? Nobody ever asks THAT question), and the remaining 14% is for distrubution, marketing, and retail dealer costs and profits. The report can be found at this url: http://www.eia.doe.gov/neic/brochure/oil_gas/primer/primer.htm
As to your question:
“Explain to me Lucy why last week Gas went up 10 centsin an 8 hr period, the next day 8 cents. But when the price a barrel did drop after labor day most stations still have not lowered there prices.”
This is a relativley easy question. The answer is consumer behavior. The media caused a panic and people started topping off their tanks, filling up gas cans, and filling up all their other vehicles. This caused a spike in demand. When I was at Sam’s Club when the prices first started rising due to Katrina, cars were lined up all around the parking lot. This is just one example. If Sam’s doesn’t raise the price (in this case for example), the station will run out sooner. Higher prices discourage people from waiting in line. If the station does not mark the price up high enough, the station could cut into its profits, break even, or operate at a loss because once the station runs out of gas, the station has to buy more at a higher price. Other than the market forces, gas retailers have little incentive to rise the prices because their profit margin remains the same if the retailer ‘guesses’ how much a gallon of gas is worth correctly. It’s sort of like the ‘Price is Right,’ when you think about it.
This isn’t to say that some retailers won’t try to raise prices above what the market will bear. If station A is selling Regular Unleaded at $2.99/gal and station B is selling the same grade at $3.15/gal, guess which station I’m going to visit? There’s no need for the government to slap a fine on station B because most people will go to station A anyway. Anyone who chooses to buy at station B does so by their own free will.
As to the “after Labor Day’ part of the question, I’ve noticed a little bit of a drop in my area of town. The QT station near my work was up to $3.15/gal (Reg) last Thursday and by Friday, it was back down to $2.99/gal (while another station was still @ $3.15/gal). Maybe the price isn’t back to where you or I would like, its still an improvement.
As to the third part of your question:
“And explain why 2 Stations, same brand, same owner, 3 city blocks apart vary over 10 cents in price. Not for a day or two but for over a week, Both recieve loads on the same day, same amounts, same price.”
I have noticed that too and I’m just as puzzled as you are but let me take a stab. 3 city blocks may not seem like that far of a distance but in the terms of sales traffic, it could be a signifigant disance. Maybe one station does more business than the other and requires a new delivery of fuel more often than the other. Let’s say that both are Chevron stations (they seem to be the highest). It could be that one is managed/owned by one person and the other by someone else. Each owner/manager calculates (bids?) the retail price differently. Each will track the sales of his or her station and make adjustments as needed.
Bob? You're kidding, right? Please tell me you're not serious. PLEASE.
Statistical figures are inferior to your "fact" that you're jealous of someone who has more than you? Assumptions do not equal facts? But you ASKED why one gas station has a higher price than another -- you didn't provide an answer. So Stephen took a shot at answering your question. Then you accuse him of taking a cop-out. Well then, Bob, what is the FACT that makes one gas station cost more than another? Don't guess, or you're copping out.
And you never did answer what is ‘gouging’. Please tell us your definition so we know upon what planet you live.
Bob, do you know the actual price paid by distributors and retailers for gasoline right now? Do you know how much the state and federal taxes are? How about the transportation costs, per gallon? Taking all of those things into account, and the scarcity impact caused by Katrina, do you think the price at the pump is too high, or too low, currently? If a gas station sells all of its supply of gasoline before it gets the next shipment, does that mean the price per unit was too high, or too low?
Oh Bob, Bob, Bob (shaking head).
I retrieved this from USATODAY.COM
If this doesn't back up what Stephen has said and change your way of thinking, then I don't know what will.
"Q: Aren't gas stations gouging or price fixing; raising prices just because they can?
A: Sometimes, yes, retailers are exploiting the situation.
But often stations are not gouging. They are raising prices because they paid more for gas the last time the delivery truck filled their underground tanks, or they are trying to charge enough to cover the higher prices they will pay the next time the delivery truck shows up, usually within a few days.
Tanks are refilled once a week at a typical midsize station, several times a week at high-volume discount stations.
Thus it's unlikely a station is charging today's fear-induced prices for gasoline the station bought a month ago for half today's price.
Price fixing is different from gouging. It's when competitors get together and decide how much to charge. If the manager of the Chevron station has coffee with the manager of the Mobil station across the street and they talk about how much to charge, that would be price fixing. Same if two or more big oil companies did that, or two or more petroleum distributors.
If a station is simply adding 50 cents a gallon to cover its expected higher costs, or purely to make a bigger profit at a time when prices elsewhere are going up about the same, then that's just hardball business."
Bob, you said... "3rd, the shot Steve took showed he did not read my post were I specificlly sited that both stations were owned by the same person, for the same oil company and recieved deliveries on the same days.
But unlike Steve I havent a clue, so that is why I refrained from giving a reson because , It would be a cop-out as well."
The person copping-out would be you Bob. Stephen answered all of your questions, point by point. You, on the other hand have given nothing. On the 3rd point, he didn't answer it like he knew the answer, in fact (and it is a fact), he said...
"I have noticed that too and I’m just as puzzled as you are but let me take a stab".
He took a STAB at it, he gave you a hypothetical, because unless you go and interview the owner of two same named stations, with the same delivery schedule, etc., we may not know how two stations so close together with the same name can charge different prices!
Here is the link from where I found my *facts*. There are other questions answered there. http://www.usatoday.com/money/industries/energy/2005-09-02-hurricane-gas-questions-usat_x.htm
Some more questions for Bob, or anyone else who sees this from the same perspective.
Are we more, or less, likely to encounter a shortage (as opposed to scarcity) when demand is high and the cost is low, or when the demand is high the cost is high? If you are concerned about Peak Oil (which it appears you are, based on your comments), what do you think is the best way to ration utilization of the, relatively speaking, scarce resource of oil? Would the best approach be to raise the price of gasoline (and other petroleum products) to the point where demand decreases? Or would it be preferable to hold prices low, which would cause demand to increase? And, if the US were to decrease demand artificially, what do you suppose would happen elsewhere globally? Would other nations simply take up the slack in supply that was no longer being used due to lower demand in the US?
Here's some more interesting questions. Given that oil producers sell crude into a futures market (similar to a stock market), and that petroleum producers (ie refineries) do the same for gasoline, define how arbitrarily lowering the price at the very end of a long, and complex, chain of markets will result in any difference in the real prices of oil and gasoline? If we presume that it would not, in fact, make any real difference (and historical evidence from the price fixing schemes of the 1970's bears this out) then we need to ask ourselves what the incentive would be for gasoline retailers to purchase gasoline? For that matter, price fixing often involves fixed prices, or market caps, on the gasoline futures market. For refiners operating on slim profit margins, what incentive would they have to continue to refine and sell petroleum products? In what way would these disincentives impact the scarcity or sufficiency of petroleum products? And, would these schemes ultimately be better, or worse, for the consumer, the have nots as you described them?
Bob, I think the reason why Aimee cited something from USA Today is because (to mimic your vernacular) you Left-wingers do not trust anything that is not reported by the main stream media. She did not reference National Review, The Limbaugh Letter, Fox News or The American Spectator (because all these media outlets do is lie right?), she referenced USA Today. USA Today is, in my *opinion*, very biased to the left. As much to the left USA Today is, the journalists still cannot ignore whatever facts they uncover.
But by your standards, nothing can be trusted as a resource. We can’t trust high school economics text books teaching supply and demand because *obviously* the Bush Administration censors all textbooks to reflect his agenda.
I agree with you that we should not believe everything we read or hear. Everything I read (Left, Right, or Center) I examine using logic and reason *not* emotion. So in a sense you are right. If something I read rings true based on what I already believe to be true, using logic and reason then I tend to believe it to be credible (as I am sure you do as well).
So far your responses have not been logical but emotional. You have failed to respond to any criticisms directly and resort to calling us a bunch of crazy right-wingers. If we are a bunch of crazy right-wingers, respond to each point directly and show us the error of our thinking.
I have no problem with my views being challenged, it happens frequently on this site by many of the same people who are challenging you now (read my series on children’s rights and you’ll see what I mean. Heck, you’ll probably take their side on the issue). Actually, I would like for someone to do so. Can someone help Bob out here? Can someone challenge the actual content of my post and/or subsequent responses on the points I have made so we can have a rational discussion on gas prices?
I'll come back to your post later Stephen, I haven't really gone through it line by line.
In the meantime, I have yet to cite any facts from any source whatsoever. All I have done is asked Bob to answer some basic economics questions and give some opinions based on evaluating the situation using economics. This, apparently, gets me lumped in with the crazy "right wingers", even though I'm not (not "right wing" that is, I probably qualify as crazy!).
Bob really should re-evaluate (like most Americans) his political definitions. Americans are going crazy over miniscule differences between two mildly socialist, mildly authoritarian political parties. From my position, way off on the extreme edge of a much more realistic political spectrum than the one Americans use, there is almost no difference between the two "wings" that he refers to.
In any case, answering my questions would be an interesting way to learn something about how markets really work, as opposed to wishful thinking.
Bob: The Haves and Havenots I refer to in my earlier post are the ones in Control (The Haves) and the consumer (The havenots)…
In control of what? If you’re referring to ‘producers’ being in control of, well, production, (of petroleum, gasoline et al) then you’re correct. But you seem to be implying that the “Halves” are “in Control” of the specific consumption behavior of the grand We (consumers). In other words, are you suggesting that “Big Oil” or whomever arbitrarily sets prices without regard to consumer demand? If so, why would prices ever decrease? Or why would they remain relatively constant for that matter? Lastly, with their inordinate power, what is to stop the “Halves” from setting prices so high that—just to spite the “Halvenots”—only Bush, Cheney and their Halliburton pals are able to afford it? After all, the law of supply and demand is just a contrivance of the Right.
Honk If You Have Gas
There are some interesting correlations between the price of gas at the pumps and the profits the oil companies are making. If the price of oil is so high, and the price of gasoline is so high, how can these companies be breaking every profit record in the books?
It seems that the more you and I pay for gas at the pumps, the more money these people make. And we thought that the high prices were the result of China's growth and storms buffeting the Gulf coast of the US.
Is it possible that the high prices we pay are due to the incredible greed of these oil companies?
Third-quarter profit at Exxon Mobil, the world's biggest publicly traded oil producer, jumped 75 percent to an industry record of $9.92 billion. The Hague-based Shell set the previous record about six hours earlier, when it said net income rose 68 percent to $9 billion.
Ok, that is $10 billion dollar profit for Exxon Mobil. Yep, $10 billion. A whole whopping TEN BILLION. And that is not for an entire year, just the last quarter.
As a publicly traded company, I like to see them make some money. After all, that is what we are all about: making money. What I don't understand is how can they make so much money when they are paying a lot more per barrel of oil!?
Maybe I do understand, and maybe I don't. I understand that when President Bush and VP Cheney were elected, the price of oil was around $20 a barrel. I understand that now it hovers around $50. I understand that if the price per barrel goes up, the price per gallon of gas at the pumps will also go up. Now, I dont care if the Administration is led by Republicans or Democrats as much as I care about how much I pay for gas at the pump. What I'm saying is that I am not bashing the Republicans, I am bashing whoever is there now while this is going on. Sure, both Bush and Cheney have an oil business background. Sure, they both have a lot of friends in the business. I know I don't have dinner or lunch with or pal around with oil magnates. That is because I am not important enough or rich enough to be up there with them sharing in their incredible bounty.
The only way I can be important is by being a part of a few million people that decide to pick just one of these oil companies, since they are all the same, and give it hell for making so much money while my money is all going into my gas tank.
You can be important, too. You need gas to get to work and to take care of your personal and family business. So buy all your gas from ANYONE BUT EXXON MOBIL. This way, you are sending a signal that says how happy you are with their level of profits and the price of gas. Do this for a few months, and you'll see how their next quarter goes. Yes, those $10 billion were profits for the last quarter. No, not a whole year, just a 3 month period.
In round numbers, as the price of gasoline doubled, their profits doubled as well. This tells me, and I am a simple guy, not a genius, that the way to double your profits is to double the price at the pumps. You and I may have cut back on our driving and other things to save money on gas, but these oil fat cats are out eating caviar and drinking champagne.
I know, what you are saying. It's more complicated than you think. Maybe it is complicated, but I see a correlation there somewhere. Don't you?
Angry Consumer dot Com
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