Friday, April 28, 2006

Thou shalt not take the Lord's name in vain

Well, since I don't believe in "the Lord" I guess it might be ok to use his name in vain. All it's going to take is one more fill up at $10 more than I am used to paying. These prices suck. Yesterday EXXON announced record profits. I think we all know how EXXON did it

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Johnny Crow said...

It takes me $100.00 for a full tank of gas (of course I have a 34 gal gas tank). But these prices are mind boggoling. makes me want to cry.

rg said...

Hey Mojoey--

I'd sure love to see a little libertarian leaning free market analysis on gas prices instead of this weak mainstream stuff. How much of that total was in direct taxes, how much in indirect? How much did Exxon make off of it? Why shouldn't Exxon make that much?

Mojoey said...

rg - If I only had the time! It is so much more fun to say “I hate this” than it is to say “this is why”. My motive in this post is obvious – I think the EXXON business model controls too much of the supply chain. Their control, and the control of the other major players, may give them the ability to manipulate the pump price to their advantage.

EXXON owns everything from source of supply to commercial pumps and most spaces in-between, including crude oil and gasoline refinement.

I’ll look closer and post more on this in the future.

Atul said...

If we all used less gas, the price would come down. It's that simple. And to complain about filling up fuel in a guzzling vehicle shows how short-sighted we tend to be. It's similar to those who rode the stock market into retirement because they thought it would go up forever. Then it crashed.

My minimum requirement is 30 mpg highway out of environmental concern, consideration for safety and practicality.

Mojoey said...

RG - a standard economic argument does not apply here. Simply stating the increasing demand will lower prices only works in a situation where supply exceeds demand. Currently, crude oil capacity exceeds worldwide demand by a considerable margin, yet our pump prices continue to rise. Our pump price reflects a situation where demand for gasoline is greater than the refineries ability to produces it, this creates a shortage which drives up the prices of gasoline. Since gasoline is an inelastic commodity, consumers will only respond negatively to prices increases at the high end of the price curve. People need gasoline to make a living. Gasoline producers know this.

We are seeing two type of pressure on gas prices currently, crude oil spot prices are at an all time high. This will translate to future price increases for gasoline, as suppliers will pass the cost on to the consumer. In addition, there is apparent market manipulation on the part of the major gasoline refiners. They are thought to be limiting gas production through various means.

Crude oil prices are responding to fears of supply stability and dramatically increased third world demand. Traders think that the future supply of crude oil will be beyond our ability to produce it. Gasoline prices are responding to increased demand from the summer driving season, and reduced supply on the part of the suppliers as well as the increased cost of raw material. I also understand that gasoline refineries are complaining about shortages of methanol. Although the price of methanol appears to have remained stable lately, so this might just be a fiction.

Atul – yep, I own a gas-guzzler. I love my truck. When pump prices were a $1.80 I was happy (and stuck with it). Although I agree that reduced consumption will lower the price of gas, so will increased supply. Since supply appears to be manipulated, I am not happy and I will complain.

The current thinking among economists is that the major gasoline producers have artificially manipulated supply to increase short-term profits. Recent financial statements support this argument.