Gut Rumbles
 

April 11, 2006

bend over some more

Nine days ago, I posted about how the price of gasoline was becoming outrageous. Bejus! I was pissed because gas was selling for $2.49 in southeast Georgia at the time. It's up to $2.65 now. That's a fifteen-cent increase in nine days! WTF is going on?

I realize that the oil market is volitile and price fluctuations for gasoline are bound to occur. I also realize that refineries have to jump through ridiculous environmental hoops and make reformulated gasoline for the summer months. And thanks to 60 Minutes for scare-mongering about MTBE in ground water, refiners were forced to eliminate that ingredient from their product, which certainly added to the cost.

But I still think gas prices are ridiculously high right now. Let's get one thing straight--- I damn sure ain't calling for government action in this "crisis"--- government's solution probably would be to slap more tax on gasoline or "punish" oil companies with some kind of windfall profits charge (both of which CONSUMERS would pay--- not the oil companies. Shit. I may not do math, but government doesn't do economics.). No, I want government to stay out of the fray. Government meddling in the market is a big part of the problem to begin with.

I just want someone to explain WHY gasoline prices are what they are today and WHY they appear to be headed higher still. The kind of price swings I'm seeing just ain't natural for ANY commodity.

What causes that?

(UPDATE: here are some of the reasons, and a prediction that prices will increase another 15 cents per gallon over the summer. Now I wish I hadn't asked...)

Comments

Spring break threw more demand into the equation.

Posted by: Arcs on April 11, 2006 10:17 AM

In a word: Greed

They charge because they can. When no one went to jail or paid a dime of fine after the huge run-up with Katrina (well before supplies actually got pinched), the gas barons saw that they could do what they wanted, and so they are.

This does call for government intervention. I want my government to site refineries on Federal lands (where they make good sense to do so), protect them with Federal Police (or troops) and lease them back to oil companies.

If we had just 5-10% excess refining capacity in this country, no shortage would ever happen, especially not these contrived ones, and the prices would remain stable WITHOUT government intervention.

Yep, when the price of the raw materials goes up 3%, and the price of the finished product 15%, someone ain't being honest.

Posted by: Rivrdog on April 11, 2006 10:17 AM

Well, here's a first. I agree with Rivrdog. He took the words right out of my mouth. It's pure greed.

Posted by: Libby on April 11, 2006 10:23 AM

Part of the trouble is Venezuela. hugo chavez, like all communists before him, has staffed the national oil company (products sold as Citgo in the US) with political cronies. As a result, oil production has fallen - leading to more trouble as the people living in the province with the most oil are threatening to seceed from Venezuela. chavez's reaction has been to send more security forces - actually Cubans supplied by fidel castro - to the province - resulting in even lower oil production

Of course, our lyin' liberal news media reports none of this - you have to read the international press on the Internet to find out this stuff.

Posted by: Juan Paxety on April 11, 2006 12:06 PM

The earth has a gas gauge as well as or cars. If this website is correct - we're about 1/2 tank. -- Last I looked - There ain't no more Dinosars...

www.peakoil.com

Mark --

Posted by: Mark -- on April 11, 2006 12:17 PM

So why don't we ever SEE anyone out there changing the prices?
Our local stations have numbers that someone has to change, they aren't digital. And yet I am up and down the same street at all hours of the day and night and have yet to SEE the actual price change.

I'll go to work at 3 pm at one price and it's changed by the time I'm on my way home at 3 am!

Posted by: A Different Kim on April 11, 2006 12:22 PM

Kim: I've seen them doing it. It's normally in the morning.

...

And the reason prices go up so fast is precisely because gas is a commodity, but unlike most of the other ones, it's one that's rapidly consumed and doesn't stockpile very well (it can be done, of course, but it not nearly as easily or cheaply or for as long as, say, copper, or barley).

An improved economy in Indonesia (say) doesn't strongly affect world commodity prices in, for example, rice or manganese, if only because there's significant surplus capacity in those commodities (more rice can be grown easily, and while I don't know for sure, I'm guessing we're not short of manganese).

Oil, on the other hand, well, we use every last drop that gets pumped out, and there isn't significant capacity left over sitting idle or cheaply and easily developed. So when Indonesia or China start using more, well... Economics 101: Prices go up all over the world.

(And, sure, things like Juan says; if Venezuela produces less because of Commie Idiocy, the effect is identical to an increase in demand.)

Because oil is a worldwide commodity, and almost entirely fungible.

It's quick and easy and satisfying to blame The Evil Oil Companies, but it's not accurate.

(Yeah, they made money after Katrina. After making low profits for years due to the SE Asian economic collapse driving down demand.

Where do y'all think the money to drill and develop new oilfields comes from?

Pixie dust and fairy magic?

Nope. Profits.

And if Evil TexaShellCo tries to jack up prices, ARCO and BP will undercut them to get more of your money.

The same commodity nature that makes prices rise worldwide keeps prices down as low as possible worldwide, because someone else is always happy to take your dollar, and ensure the Evil Badmans don't get it.

The only time this doesn't happen is... when the State interferes and prevents them from competing for your money.

Or if there's massive collusion. But there's zero evidence of that, and massive incentives for anyone involved to break the collusion. [Imagine if any one player could prove that others were colluding; they could tell everyone, come clean, and watch the competition get literally destroyed by the Feds. What better way to remove your competition than get the State to do it for you, for free, and permanently?])

Posted by: Sigivald on April 11, 2006 01:28 PM

They'll fuck us for however long we stay still for it... they charge what the market will bear. I put fifteen bucks in the tank @ 2.79 yesterday. Fuckers. (Tucson, Arizona) you can go to www.gasbuddy.com to find the cheapest near you.

Posted by: Cythen on April 11, 2006 01:59 PM

Just thought I'd chime in with a "Mark's an idiot."

Cheers!

G

Posted by: GORDON on April 11, 2006 05:13 PM

Actually, I think the better question is "why did gasoline prices fall from their post-Katrina highs?"

Did anybody here significantly reduce the amount of gas they were using when prices were$3+ per gallon? I didn't. I don't know anybody who did. I haven't even heard of anybody who did. I assume there must be some, but the vast majority of us paid up even when gas prices were higher than they are now.

So, my question is, if we're willing to pay for gas at thost kinds of prices, why did the prices fall after the initial post-Katrina price surge? If we've demonstrated a willingness (not that we're happy to do it, but we're willing to do it) to pay 3 or more dollars a gallon, why would anybody sell gasoline for less than that?

Think about it this way: would you work for less money than the boss offered you?

Posted by: Tom on April 11, 2006 05:29 PM

Exon Mobile has now beat Wal-Mart in richest company. I wonder why. It's summer. More people are travelling, Easter is around the corner, more people are going to be on the roads,and rich guy wants more money, THAT'S why.

Posted by: S on April 11, 2006 05:47 PM

sigvald is mostly right, but he did miss one thing:

The oil companies don't set the price of oil.

There are "spot markets." There are actually only a few places where they happen -- Chicago is one -- but with the Internet they're all connected, and what happens in Chicago affects Cairo, and vice versa. People who have oil, or refined oil products -- gasoline, diesel, heating oil -- post that fact on the spot market. People who need oil, or refined oil products, bid to buy what's offered. Absent actual collusion, which will get you put in jail toot sweet, the sellers have absolutely no control over what the price is. The only thing they can do to influence the market is post more supply, or take what supply they have out of it. They don't have any more to post, and if they take supply out of the market they don't get all that lovely money and have to pay to store the stuff.

So raging at "big oil" for high gas prices is not only a waste of time, it's blaming the wrong people. Yeah, ExxonShellMobil get the money, or part of it, but they have almost no say in how much. You could absolutely fix the price of a barrel of oil at the wellhead, or at the delivery point, and the only difference it would make is that some middleman gets the money instead of the oil company -- and the middleman isn't going to hunt for more oil, or build more refineries, with that money, guaranteed. The oil company might. The price wouldn't change a penny, or, if it did, it would go up -- because if they can't get money for it, why bother to bring it to market?

People who scream about eeeevil profiteering oil companies are either vicious, opportunistic cynics trying to blame someone else for their own faults, or too ignorant to pound sand and cruel-minded to boot. If you belong in the second group, stop listening to the first and try to learn something.

The reasons oil is high now are complicated. Included are the situation in Venezuela, as noted above, and the growth of China and other third-world countries. But the big driver here in the United States is the lack of refining capacity, enormously exacerbated by the fact that the Greenies have got it set up so that every podunk municipality in the country needs a different "blend" of gasoline, and you don't change blends by turning a crank; you almost have to rebuild the refinery. That usually means that there's only one refinery that makes a specific blend, and it doesn't make it all the time; it shuts down for anything from a couple of days to a couple of weeks to change over, and during that time makes nothing at all. And there isn't another refinery to take up the slack, because you can't build one in anybody's back yard and everywhere is somebody's back yard, plus the fact that if the oil company admitted it had the cash to build a refinery the Government would tax it all away, to the delighted pleasure of Rivrdog and Libby, right? Eeeeevil profits. Much better used to subsidize Piss Christ, the NEA, and Katrina "victims".

The guys buying in the spot market need oil; sometimes to sell it to somebody else, sometimes to use in their own operations. If they aren't sure it'll be there when they need it, they bid the price up to make sure they get some. If they're sure they'll have it when they need it, they don't bid so high. So don't bitch about the price of oil if the rest of the time you're hollering for measures that have the effect of restricting the supply, and shouting down suggestions that might increase supply. It just moves you from Group Two to Group One.

Regards,
Ric

Posted by: Ric Locke on April 11, 2006 07:48 PM

$2.89 for a gallon of regular in Daytona today....and whatever the reason(s)... it sucks!

Posted by: Jean on April 12, 2006 01:17 AM

A significant factor in the current increase is EPA's requirement to change the formula for summer driving. Each refinery must shut down portions of production over a period of time and then restart. That increases production costs and reduces supplies.

EPA forces them to add things like ethanol or MTBE to add oxygen to the fuel to make it burn cleaner to reduce summer time ozone levels. Unfortunately, MTBE is a major source of groundwater contamination and the industry is seeing an increase in lawsuits.

Congress does not want to pass liability protection so the companies are looking at ending MTBE as an additive and switching to ethanol.

Ethanol is already in short supply and is more expensive to produce than MTBE so there is another probable spike in prices coming soon.

Brazil produces more than enough ethanol but there are US tariffs for imports of ethanol to protect US agriculture and encourage US ethanol production.

Everything the government touches (tries to control) including healthcare, college tuition, energy, etc. seems to only make these things more expensive.

A similar thing happened to natural gas prices. The EPA restrictions on air pollution from power generation make it cheaper for power companies to use natural gas instead of coal, oil or nuclear (regulatory and start up costs). So more demand for natural gas reduces supplies to residential and other business uses including almost all manufacturing.

Of course, due to still other EPA regulations, the natural gas fields located off the coast of most areas of the US are off limits to exploration and exploitation so now it is being shipped in from overseas. And now the Chinese are going to help Cuba exploit the gas reserves just off the Florida coast. Maybe we can buy it back.

EPA and other government agencies affect all this and get little or no blame. The companies that are trying to provide the materials we use have to meet costs, provide employment and employee benefits, and obey a plethora of regulations but are at fault because they "set" the prices. Sorry, but that isn't the sole source of the problem.

Oh yeah, and don't forget the state and federal tax included in each gallon of gas. It's on a label on the pump. Take that off and see what a gallon of gas costs.

Rant over. Love your blog.

By the way, glad to hear your doing better. I stopped visiting for a while, but now I'm back.

Posted by: Jonboy on April 12, 2006 10:32 AM

My husband I were in the auto business for years and have been looking into investing in a Zap Smart car dealership. They get about 40mpg and have some other things worth looking into. Go to www.zapworld.com and take a look at the "smart" car link if you're interested in checking them out. I have a 17 year old. I think it's an ideal solution.

Posted by: Tessa on April 12, 2006 12:10 PM

Clarification: The 17 year old plays basketball on travel teams year round and needs fuel efficiency since he has no time for a job. I make him pay for his own insurance and fuel so he learns money doesn't grow on trees. Was considering the safety factor also.

Posted by: Tessa on April 12, 2006 12:18 PM

Walter Williams says 1950 gas, adjusted for inflation, would be $2.30 today. This commodity historically has lots of short period swings. Doesn't really look like WE'RE ALL GONNA DIE!!! real soon.

Posted by: Larry on April 12, 2006 06:10 PM

i looked at your zap electric cars and the only problem with them is that they only get about 20 to 40 miles per charge untill they can get a longer life on them they really seem impracticle.

Posted by: Peder on April 17, 2006 11:49 PM
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