Cynical Synapse

Sun, 14 Sep 2008

Fact or Fiction—Obscene Gas Prices

Filed under: Behavior, Economy, Gas Prices, Oil, Profiteering, Rants — Tags: , , — cynicalsynapse @ 12:34 am

Friday morning, I was out on an errand and the radio station said gas prices were going to go up 30 cents by afternoon because Texas refineries were shutting down for Hurricane Ike. It’s always been a source of contention for me when some “issue” between the oil fields in the Middle East and the refineries here has immediate upward impact on pump prices. It’s gotta take at least a day for refineries shutting down to result in empty pipelines from Texas to Michigan. And how long does it take to empty those million-gallon tanks you see near every population center?

My biggest complaint is how stations raise prices based on the news, not the product in their tanks. If the station paid $3.75 per gallon for what’s in the tank, then the pump price should be $3.80 or $3.85 per gallon until the next damn delivery! The stock already in the tank is bought and paid for, isn’t it? Who gets the extra profit from the price jump? The station or the damn oil companies? Isn’t the collusion obvious to government when all stations in an area charge the same price and change their prices at the same time? Hello! Don’t tell me you’re on the lookout for gouging when anyone with at least one good eye and a brain can see otherwise.

Knoxville prices jumped a whopping 85 cents! That’s truly obscene! Toronto consumers saw a meager 45 cent increase in anticipation of Ike’s effects. I bought gasoline Friday at $3.789 per gallon. By Saturday, the same station’s price was $3.899, but prices in the region were as high as $4.399, with an average of $4.179. Unlike Knoxville’s apparent shortages, that doesn’t appear to be the case here. So, why the big price jump? And why the unusual 50 cent spread in pricing? Prices usually tend to be within a dime.

Imagine my distress to see an Exxon station with $4.199 regular and, across the street, a Mobil station with $3.999 regular. ExxonMobil is the Great Satan in my book and the fact one is 20 cents cheaper than the other at the same intersection is truly mystifying. One blog referred to the situation as temporary and urged restraint on the part of consumers. That makes sense to me: don’t play into the oil companies’ manufactured hysteria.

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6 Comments

  1. I live in Knoxville and yesterday, the gas prices at all Pilot and Weigels stations were at $4.99, up from $3.65 the day before. However, we found gas at Sam’s Club for $3.89. (Thank you, Sam’s Club!) I’ve reported both Pilot and Weigels for price gouging and I encourage everyone to do so. The form is at http://gaswatch.energy.gov/. If we all fight back, maybe we can show these liars who is boss!

    Comment by Lisa — Sun, 14 Sep 2008 @ 10:02 am

  2. Based on your tone and reference to gouging, it is clear that you are viewing these matters through emotionalism and not basic economics.

    Low or stagnant supply coupled with rising demand = higher prices.

    With regard to oil supply, environmental policies have strangled our energy production for the last 30 days: limited drilling, no new refineries, no new nuclear plants, etc. More recently, a number of refineries in Texas were shut down due to Hurricane Ike. It will take days to get them started again.

    In the midst of lowered supply, remember that China and India’s economies have exploded. As their wealth increases, so has their need/demand for fuel.

    If you seek to point fingers or cast blame, look to the government, which, whenever it interferes in the free market, always causes disaster. Artificially lowering our supply of oil has been a major contributor to the current prices.

    Despite pointless investigation after pointless investigation, oil companies have done nothing illegal or immoral. (1) They have provided a product which is the blood of our economy, (2) their profits are high because their product is so important, (3) oil companies pay extortionist taxes which eclipse what some call “obscene profits.”

    And yet, per dollar, oil companies do not make nearly the profits that, say, Microsoft makes. Shall we conduct witch hunts on any company that is successful in the (Marxist) assumption that any accumulation of wealth MUST be suspect or even criminal?

    What IS “obscene” is the pandering and interfering by politicians who have never administered a lemonade stand, let alone produced gasoline. What IS “obscene” is that oil companies aren’t able to conduct their business as they see fit. And who suffers from this political incompetence?

    You do. And I do.

    Comment by tsfiles — Mon, 15 Sep 2008 @ 8:55 pm

  3. @tsfiles:
    See my reply at Is Big Oil the Victim?

    Comment by cynicalsynapse — Mon, 15 Sep 2008 @ 11:18 pm

  4. Everyone wants to place the blame on Pilot and Weigel’s for raising their gas prices. Fortunately, we live in a capitalist society where nobody is forced to buy gas from any specific supplier. If people were so incensed at Weigel’s and Pilot’s prices, they had the freedom to buy from someone else who offered lower prices. Better yet, they could have waited a couple of days until the prices stabilized and carpooled in the meantime.

    Comment by Nigel Stout — Mon, 22 Sep 2008 @ 9:43 am

  5. I have to say that you people shouldn’t be so upset about the few days of high gas prices. For one, it was a temporary situation and now the gas prices are back to the way they were. Additionally, the Knoxville residents made the situation so much worse by panic buying! That’s what made all of the gas run out which in turn caused even more gas shortages here. Also, for those of you who buy at Sam’s Club, I agree that it is a lot cheaper. But that’s only if you have a Sam’s Membership which is at least $40. If you don’t have one though and don’t shop at Sam’s, it’s not really worth it.

    Comment by Virginia Johnson — Mon, 22 Sep 2008 @ 10:35 am

  6. The Tennessee region is feed gas from the Gulf state refineries through a nearly 6000 mile long pipeline. Tennessee just so happens to be nearly at the end of this pipeline that has several hundred taps along the way that other locations pull gas from. The refineries in the Gulf states are already running at nearly 98% capacity in good times and so therefore suppliers have to plan who pulls what from all the dispensing stations on a 30 day cycle. Shipments for Tennessee just so happened to fall on a time when 2 hurricanes struck and power was lost to many refining stations. This diminished refining capacity to nearly 70%. What gas was shipped down the pipeline was mostly dominated by the brand name supplied (Shell, BP, Exxon). Prices rose more sharply at Pilot and Weigel’s because they are a non-branded gas retailer and buy their gas on the spot market. So, Pilot and Weigel’s are not “gouging” they are responding the pressures of supply and demand. Futures markets respond to these factors and signal prices to rise and fall according.

    If a supplier has gas already delivered and sitting site before a shortage occurs they can make immediate profits selling gas at the same price before the shortage began. Problem is that demand will gravitate to these lower prices and consume supplies faster than anticipated leaving the supplier without any gas in short order. They can make immediate profits in the short term but will end up losing out on the long term. So, instead they respond to the futures pricing signals, raise prices to match perceived demand, and get to stretch their supplies until the next cycle of shipments come in from the coast.

    Comment by Josh Reiter — Mon, 06 Oct 2008 @ 1:35 pm


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