Wednesday, May 20, 2009

So Much For The Free Hand Of The Market

All of you people hitting the Google to find out “why are gas prices going up again,” I have a very simple answer:


I’ve said this, oh, like a hundred thousand times before, but those old rules about supply and demand simply do not apply to oil and gasoline. So Newt Gingrich’s “Drill Here, Drill Now, Pay Less” campaign of last summer (remember that?) was and is a lie.

I know, I'm sounding like a broken record. I just think you can't say it often enough, especially when Republicans are trying to pull the ol' switcheroo where their good buddies Big Oil are concerned.

Remember back in 2003 when fears of a supply disruption caused by the invasion of Iraq prompted gas prices to "skyrocket” all the way up to $1.60/gallon? Good times, good times.

Now, however, gas prices are jumping not because there’s too little supply, but too much:
Pitfield said refineries are charging retail gas stations more for wholesale gasoline because "the refineries aren't making money. They're not making money right now. We're awash in supply, in fuel. But they're not producing it to the degree that they would normally be, as at previous demand. And demand for fuel is probably off 20 percent to 25 percent across the board, worldwide, if not more. And I don't see a great reason for that to be coming back up anytime soon."

That is, except for a relatively small increase in demand, this year, between Memorial Day and Labor Day, he said.

Let the record reflect that gas prices have continued to rise in advance of Memorial Day Weekend this year.

Under "normal" laws of supply and demand, when demand is lower, prices should be lower.

"Prices should be lower," Pitfield said. "Prices will continue to go higher."

In short, refineries have decided to refine less to keep gasoline prices high so they can make more money. Well, fuck you very much. Basically, gasoline consumers can’t win for losing; when demand goes up, so do prices. And when demand goes down, prices go up anyway.

Hmmm, seems like the system is rigged.

Now that President Obama has raised automobile fuel efficiency standards, one wonders what impact this will have on gas consumers. Funny you should ask:

11Alive: "If we'll be using less gasoline because we'll all be driving higher-mileage cars, are the refineries going to kick up the prices because we're using less?"

Pitfield: "Oh, absolutely. I mean, that's basic economics."

The new basic economics of supply and demand.

It’s always good news for the oil companies.

Speaking of, last year ExxonMobil sold 2,220 gas stations, saying they weren’t profitable, even with gas at $4 a gallon. A friend of mine who works for Mapco calls gasoline a "loss leader" -- they make their money off of beer and cigarettes.


It’s amazing that we’re all paying through the nose yet nobody is making any money.