Last week, the U.S. House of Representatives passed H.R. 1252. The sternly titled "Federal Price Gouging Prevention Act" established penalties for people who hoik-up gas prices to take "unfair advantage" of U.S. consumers during an "energy emergency." The Right condemned the act as stealth nationalization of the American oil industry. The Left condemned the bill for not going far enough to rein in Big Oil. So, is H.R. 1252 a well-intentioned congressional misfire or part of a great political swindle? Yes.
Representative Bart Stupak is the sponsor of this affront to common sense and economic reality. In case politically-insensitive voters were motoring under the impression that price gouging has a relatively minor impact on current national gas prices– as compared to, say, the effects the laws of supply and demand– Stupak was ready to set them straight and sort it out.
"[Americans] want relief at the pump," Stupak proclaimed. "And that is what we are doing."
Stupak was also happy to add the requisite spin to his sham cause-and-effect conundrum. "Every member [of the House] has a choice: side with big oil or side with consumers who are being ripped off at the gas pump."
Stupak's act would punish individuals and/or corporations that charge "unconscionable" prices for gas and other petroleum distillates. Corporate violators would be subject to up to $3m in civil fines, and $150m in criminal fines.
Adding karmic payback to the deal, any fines collected would be used to "provide assistance under the Low Income Home Energy Assistance Program administered by the Secretary of Health and Human Services."
Despite Stupak's legislative zeal, the political Left isn't happy with H.R. 1252. For one thing the act only applies after a Presidential declaration of a renewable, thirty-day "energy emergency." "In other words," complains the Corporate Crime Reporter blog, "almost never."
The Director of the Public Citizen non-profit consumer advocacy organization is equally disgruntled. Tyson Slocum says H.R. 1252's "unfortunate language" proves that the oil industry "still holds sway over the Democratic Party." The Rhode Island native predicts more symbolic jabs. "Are you going to see the Democrats taking big swings at Big Oil? No."
At the other end of the political spectrum, former Nixon speech writer, economist, actor and game show host Ben Stein used his Yahoo! Finance column to pronounce the Federal Price Gouging Prevention Act de facto pricing control.
"This regulation could be triggered by actions that are basic to the free market," Stein railed, for exampling rising gas prices due to shortages caused by war or natural disasters. (As if.)
"In the most elemental terms," Stein opined, "the Stupak bill punishes oil companies when the free market is working as it should, allocating supply by means of the price system."
In Stein's estimation, drivers unable to find gasoline at times of crisis would suffer most from the bill's powers, not high-paid corporate big-wigs. Of course, the Executive branch was down with that.
"This bill could… bring back long gas lines reminiscent of the 1970s," the White House warned. "Gasoline price controls are an old– and failed– policy choice that will exacerbate shortages and increase fuel hoarding after natural disasters, denying fuel to people when they most need it."
Political posturing aside, the act has enough holes to accommodate several hundred thousand tankers of premium-priced petrol.
The bill proscribes selling gasoline or petroleum distillates at "unconscionably excessive" prices that "[indicate] the seller is taking unfair advantage of the circumstances related to an energy emergency to increase prices unreasonably." The act does not define "unfair advantage" or "unconscionably excessive."
The proposed law stipulates that federal investigators must prove that its violators did "grossly exceed" a 30-day average pre-emergency price, or "grossly exceed" prices of competing sellers.
Without a proper definition of "gross excess," the law would leave federal prosecutors and courts almost as powerless as they are now (which is not powerless at all, but that's another story).
Stupak's bill also instructs the feds to pause and ponder conditions attributable to local, regional, national or international market conditions, and "additional costs, not within the control of that person, that were paid, incurred, or reasonably anticipated by that person, or reflected additional risks taken by that person to produce, distribute, obtain, or sell such product under the circumstances."
Let's face it: any lawyer who couldn't beat Stupak's rap needs a new profession. That said, despite its inherent inanity, H.R. 1252 is a brilliant piece of legislation.
Democrats are sending President Bush a bill so fundamentally bone-headed that the Commander-in-Chief has no choice but to veto it. The Dems can then accuse the GOP of being Big Oil puppets during the upcoming national election cycle. Democratic candidates can also take credit for trying to protect you, the American people, from price gouging by the evil oil companies during times of crisis.
In truth, they've done nothing of the kind.
Click here to view HR 1252 in its entirety.
Do you think gasoline price gouging requires federal intervention?
Whether a smart political move or not – what a phenomenal waste of time. Honestly – isn’t Congress supposed to work in the US citizen’s best interest? There has got to be something better for them to spend their resources on.
It’s simple – if you don’t like the price of fuel (or anything else) don’t buy it.
William…wonderful, clever writing.
It’s not “bone-headed” at all; like the first “war funding” bill, it was designed to be vetoed. This makes the Dems look like Robin Hood, and the Administration look like they’re siding with the “Robber Barons”. I actually lean a bit left politically, but crap like this is purely political grand-standing — but it seems to work in this politically-polarized country. The talk radio community get thrown another bone…
I’d love lower gas prices, but it’s tough to deny reality. Good article.
Shaker’s point about political grandstanding is well-taken.
During our lifetimes, our politics has become less and less about dealing with reality and more and more about winning the “Inside the Beltway” war of perception.
It’s also interesting how the majority of Americans are for “free markets” until the natural consequences of that concept start hitting them in the pocketbook.
Ug. This is a waste of time, but how many times did we see this when Clinton was pres and the Republicans controlled the house and senate?
We seriously need a redo of our bill creation and passing systems. So many crap laws get passed because other issues/items are attached to them. There needs to be a one law/change per bill period. No adding on things. That would help simplify things, but then no one in Washington wants things simplified or to make sense.
All that said, I am still having a hard time grasping why gasoline prices are so high. The refineries supposedly had all these fires and maintenance problems, so they claim supplies are tight and jack the prices up. So far as I’ve seen, no gas station has ran out of gas. That sort of defeats the tight supply claims does it not? To add to it the oil companies are raking in massive profits in these times of supposed shortages. Shouldn’t they be breaking about even or the profits going down if supplies are so tight and there are so many problems? Shouldn’t there be outages?
That gasoline market just does not make sense to me. *shrugs*
As for not buying gas, I wouldn’t buy it. But I have to buy it to get to work. See the problem there?
I wish the Germans would bring over the damn diesels already. If prices keep going up I’ll need a diesel 3 series or A5 in the future. $2.89 for diesel, $3.13 for 87 and $3.37 for 93, guess what I use?
We are viewing gas like a utility. My opinion is that there is little need to regulate things that are not utilities. Utilities, however, need regulation because they have monopoly-like powers in many ways (e.g. controlling all delivery systems).
For anyone who thinks that regulating non-essential utilities is a bad thing, go check out what your cable company can/cannot do. They are utility-like in many ways too. I can think of few things less essential than cable television–it just goes to show that greed has a lot to do with who we legislate.
Of course, none of this really matters–it is just another meaningless statistic a politician can smear his/her opponent with.
People around me are all saying the oil companies are “gouging” us. I say why now? Why not 5 or 10 or 15 years ago, why now? Because it is demand folks, pure and simple.
Someone above said “why haven’t any gas stations run out if there is a shortage.” Because if gas were a buck a gallon they would run out–people would suck more of it down. Gasoline demand is very elastic so there has to be a major price change to bring about a minor drop in demand.
On another Web site I look at, someone actually posted “what would gas prices have to do with how much we drive?” Everything! If people would “quit driving their living rooms around” as an article I read put it, there would be a drop in demand and prices would drop.
It’s why I walked into an auto parts store recently and saw various products marked down to a quarter each. They weren’t selling! No demand, price drops. It’s all very simple. No dumb law will change that.
John
While I am a total free market economy believer, and I would never support any legislation of this sort, I still wish there was a way to exact revenge upon the greedy oil execs who get $100’s of millions in bonuses, not because of their managerial skills, but because of said laws of supply and demand.
there are lots of reasons why gas prices are relatively high.
1 international demand – there are 1 billion Changs and another 1 billion Patels plus a bunch of associated other names looking to get mobile.
2 war & civil disturbance in oil producing areas the price leap up on bad news because traders rush to secure supplies paying a higher price and charge the consumer to recoup their loss obviously. Then over time through competition the price falls.
3 Refining capacity. I’m lead to believe the United States hasn’t opened a new refinery since the 70s (the height of govt energy activism) because they are big smelly outfits that usually end up in unfortunate places like Gary, Indiana. But even expansion of existing refineries is prevented by the wise city Fathers so you get aging middle 2oth century efficiency level equipment breaking down. given the different blends the US has, it makes it even harder for the refineries to keep up.
Inflation; some of you may have noticed the US dollar exchange rate sinking to 50 pence UK recently recently. IMHO this is due to inflation or making a dollar worth less by “printing” more to pay for all the damn fool things Govt does all day without annoying the voters by announcing tax hikes. M3, the measure of the expansion of the money supply (until recently when the Federal Reserve dropped it) was running at 11% according to Ron Paul (R-Texas) in a discussion with Ben Bernanke the Fed Chairman.
the new bill will, if enforced, will guarantee empty petrol tanks at filling stations. Why? because in a emergency the price will remain the same and the winners will be those who get in quick and can help themselves to lots of gas the might not actually need but get anyway just in case so anyone coming later will miss out but if the operator increases his or her prices then people won’t buy the extra. Wholesalers will come in to the market to take advantage of the higher profits then will undercut each other to attract business.
Are you kidding me? This is a brilliant plan by the Democrats. By passing ineffective legislation on gas prices, they’re effectively creating a gas tax without taking a political hit for creating a Gas Tax.
(I’m responding like the religious obsessives do whenever Bush or Reagan was accused of incompetence — “No, it’s all a brilliant plan to shrink the government! Who cares if (poor, brown) people die of !”
Why should we give Dems any less benefit of the doubt, given available evidence that they rule more competently?)
In Ontario, a refinery fire did result in most Esso and Esso-supplied stations running out of premium grades and sometimes entirely. There was no shortage beyond what competitors could supply, though. Prices went up by 10¢/L and stayed.
LOL, the problem with rising gas price is not on the oil side, but on the greenback side. Bush just printed 90 Billion to fund the war and that will last several months only. The money is not created wealth, since it’s borrowed. But a large portion of that money will flood the commodity market and inflate the price further.
Just don’t print so much money. If they pass a law to restrict new monetary supply to be no more than GDP growth, and totally ban budget deficit, then everything would be affordable.
The gas price increases themselves arent the real painful part. Its the fact that they have gone up so much so fast. With a more gradual rise in prices people and cities can work around the problem. Most American towns have woefully inadequate public transportation. There is no existing infrastructure, (trains, subways, etc) to give alternate means of transportation. The avg joe has no other option but to drive a car. And you cant expect everyone to immediately sell their cars and get a hybrid.
Europeans have had “high” gas prices for a long time and therefore have some of the best public transportation in the world.
Steve_S:
I wish the Germans would bring over the damn diesels already. If prices keep going up I’ll need a diesel 3 series or A5 in the future. $2.89 for diesel, $3.13 for 87 and $3.37 for 93, guess what I use?
If we all started driving diesels, the price of diesel fuel would go up; that supply and demand thing again.
First, there is no such thing as “price gouging”. If a product is priced too high, you buy something else or go to another store. The price will come down to sell the product. I heard of a guy who bought several generators and some other supplies in north Texas and drove to an area where a hurricane had hit. He sold the merchandise for more than the retail price to cover expenses and to make a bit of profit. He was charged with “gouging” consumers. However, without his action, many would not have even had access to the materials he was selling.
Another reason gas prices rise this time of year is the need to produce different blends for the summer. Also, there is the issue of multiple blends nationwide. I don’t know how many blends there are, but I imagine it is too many.
Someone also mentioned the oil companies’ massive profits. Yes, they are huge, but the margins are only about 9 to 11 percent. That is not much. However, when they have $300+ billion in revenue, the profits will be large.
There are two good arguments for diesel powered passenger cars.
1) They typically go about 25% further per gallon of fuel than do gasoline powered cars and also emit correspondingly less carbon dioxide.
2) Biodiesel is a real fuel with as much energy per gallon as conventional diesel while ethanol (bio-gasoline) is a horrible fuel with much lower energy densities than it’s petroleum based alternative.
sitting@home: If we all started driving diesels, the price of diesel fuel would go up; that supply and demand thing again.
True, but diesels are 25%-33% more efficient, so we would be buying less total fuel (diesel & gasoline combined).
TexasAg03:
First, there is no such thing as “price gouging”.
Absolutely. “Price gouging” is a government propaganda for redirecting anger over their stupid(or corrupt) action.
Bush is using your money to “gouge” up your gas price, for a war most of you now don’t want to fight.
jthorner
1) They typically go about 25% further per gallon of fuel than do gasoline powered cars and also emit correspondingly less carbon dioxide.
A diesel car does go further per gallon, but not per unit energy.
And why does it emit less CO2? Remember there are more carbon atom per gallon? Thus there will be more CO2 per gallon (but not per unit energy).
Some observations:
(1) For those who wonder why the price has gone up. They forget that us US drivers now have to compete against China and India for the same barrel of gasoline. Demand is up, even through you can’t see it.
(2) The diesel sold for cars in Europe is different than the diesel sold in the US. The problem with bringing the German diesel motors to the US in mass is that their emission properties are different (and out of compliance with California) thanks to burning a different blend of diesel.
(3) It should have been obvious (it was to me) that when Ford & Chevy starting selling super-sized SUV’s like the Expedition that gasoline was too cheap to factor into more and more people’s car buying decision. I knew that the price would snap back. I am just surprised that it took as long as it did.
Yep, great piece of literature, Mr Montgomery. The unfortunate problem is that so very few people will read it and it is too far above many folks’ heads. Too many people only think that they vote with their pocketbook and will see this legislation, and any of its kind that may follow, as gifts rather than curses. It’s a shame more people do not take the time to educate themselves on such matters.
William C Montgomery:
True, but diesels are 25%-33% more efficient, so we would be buying less total fuel (diesel & gasoline combined).
Diesel has higher energy density, but diesel engines are not more efficient than direct injection gas engines, per unit energy.
What is “less total fuel?” Less in term of gallons? The terms “less” or “more” are not defined, when we are talking about different energy sources.
For example, previously you use 100 gallon gas, now you use 50 gas and 40 diesel. So you use less fuel? Absolutely not. Then what about solar power? That power source uses 0 gallons of anything. Are you using using less fuel? No! You use fuel of another type and the cost is not zero. And you cannot claim that you saved fuel unless you are talking about the same type of fuel. I.e. buying Accord instead of Hummer2 does save fuel; buying Accord diesel instead of Accord gas does not.
Diesel is an alternative to gas, but not a solution.
Oh by the way, if you think that unleaded gasoline is expensive, you should try Avgas. It’s rated at 100 octane with low lead content (the only leaded gasoline you can buy) and can be stored for years. It’s sweet stuff, but these days it’s going for well into the $4.00/gallon range and in many places has crested the $5.00 mark. Just keep in mind that it’s not just the automotive industry that is struggling.
Sorry I don’t have the sources for what I’m going to post next, but I started this comment at home, and then had to drive to work, and I left the link to the sources at home. There is no collusion or price gouging, or anything like that when it comes to gasoline. It’s traded on the open market, any one can buy and sell gasoline (in fact even a peon like me owned some gasoline a couple of months back). In fact buying gas on the commodities market is a good way to hedge your bets on gas prices. If they go up, you win in your portfolio, if they go down, you win at the pump.
According to CNBC as I was leaving the door for work, unleaded gasoline was trading for $2.23/gal on the commodities market. That’s the base price of gasoline including drilling, pumping, refining, shipping, and the oil companies’ profit.
Anything more that you pay at the pump reflect taxes, local shipping, and gas station profit.
According to some of those sources which I left at home here’s how the profit is broken down:
$.10/gal – oil company profits
$.03/gal – gas station profits
$.185/gal – federal tax
$.275/gal – average state taxes (see http://www.gaspricewatch.com/usgastaxes.asp for your state’s exact tax).
So when people are complaining about “record oil company profits”, they’re forgetting that taxes are the major component of these prices. If the “evil oil companies” would get zero profit, your price at the pump would come down only $.10/gal!
Or think about it this way, if the oil companies are making so many billions a month like everyone is saying, they’re making it on $.10/gal profit, The feds are doing better than that by stealing $.185/gal from you and the states are taking even more than that! I’m not argueing that gas taxes are bad, I’m just saying that the government is making more from gas sales than the oil companies, and no one talks about that!
I live in Vancouver, BC, home of the continent’s highest gas prices several times over the last few months. The outrage here is palpable: a local radio show host is on a gas price jihad, everyone is griping about collusion, and our opposition political party is trying to pass a bill that would see gasoline prices regulated by our utilities regulator.
While I cringe when filling my motorcycle with mid-grade at $1.25/liter, I can’t help but think that if I owned a fuel company I would want to raise prices until net sales revenue started to drop. I think competition is the only reason that the companies can’t do that, so while talk of collusion is popular I’m not convinced it is happening.
Advocates of price control point to the fact that gasoline is a necessary commodity, and it probably is. What they ignore, however, is that we brought it upon ourselves. Gas became necessary because we designed our lives around the car. From suburban sprawl, to the calculated destruction of urban streetcar lines, we built our landscape on the backs of cars fueled by cheap gas. And the gas was cheap because we externalized costs.
The fact that raising gas taxes are tantamount to political suicide is evidence that the problem is of our own design. If we allowed the price of gasoline to reflect its true cost, then it wouldn’t be a necessary commodity because other alternatives (rail-based transit, better urban design, living closer to work, etc.) look better.
There is so much to say on this subject, but I need to get back to work.
When I set out to write this piece, I meant to address the dynamic nature of how retailers price commodities in fluctuating markets. But when I read this Act, it was so bad and so obviously politically motivated, it took me in a different direction.
Nonetheless, I’ll quickly recap some of my original thoughts.
A retailer, especially a small retailer, must price his merchandise based on the replacement cost of his inventory, not on the purchase price. Therefore, in a flat market, if a gas station pays $2.96 for a gallon of gas he would sell that for about $3.00. Assuming the station buys 10,000 gallons at a time, he would pay $29,600 for a shipment and expect to ear $30,000 in sales revenue for a net of $400 gross profit.
Now, let’s say the wholesale price raises a dime while the retailer still has $2.96 gas in the ground. His cost to refill his 10,000 gallon tank becomes $30,600, which is $600 more than he would get in sales revenue if he left his retail price static. He would book a profit for the week, but his cash flow would go negative.
Now assume a national crisis like a hurricane that severely limited supply and compromised distribution. Wholesale prices could jump much more than $.10. With margins so small, not every gas station could afford to replace their inventory if they were forced to base retail prices on the average price during the 30-days preceding a “energy emergency,” as this bill proposes.
No amount of government interference at the time of such a crisis could magically make refined product appear or immediately clear a distribution path to afflicted regions. Capping prices could only serve to put the retailers out of business making gasoline even less available to consumers.
Its the 70s over again. Its funny watching people try to regulate an industry into lowering prices. Can’t be done, Chines and other emerging market countries want and need the oil too.. If the US won’t pay they will. The only thing that can come of this is shortages.
For the life of me, I can’t understand all this eagerness to believe that the oil companies are innocent of gouging the public on the price of gasoline.
What’s enough proof for you guys? There is solid, documented, public evidence that the oil companies own the White House — ever ask yourself why Cheney/Bush are willing to break the law to avoid publicizing the identities of the “energy industry” representatives who were invited into the talks of the White House’s Energy Task Force?
Beyond that, there’s simple math. The price of the commodity rises and falls, but the price of the finished product rises and rises. How does a commodity industry achieve massive, record profits? NOT through a rise in the price of the raw material used to make the commodity — the role of the oil company is theoretically to make a profit on their refining/marketing, and simply pass through the cost of the commodity. No, they’re using crude prices as an excuse to increase their own markup on the commodity. What isn’t gouging about that?
What’s more, it’s disingenuous to tell America’s motorists “Let them fill their gas tanks with cake.” The decision to build the Interstate network was made in the 1950s. Subsequent policy decisions have institutionalized suburban sprawl, the decentralization of jobs within metro areas, and toll highways that take on a life of their own. For most Americans, no car means no job, no life — simple as that. People can opt for more economical cars, and they should. But history proves they will, and that they’ll still get gouged.
I still remember the comparable ripoffs of the 1970s. At that time John Swearingen, CEO of Amoco (since merged into BP), was asked if he felt any obligation to the American public. He sniffed imperially that “My only obligation is to my shareholders.” Meanwhile his wife Bonnie enjoyed the distinctly American life of a “socialite,” an existence that included a trip to Italy where she fell in love with white Italian marble as a surface for the company’s new 90-story Chicago headquarters. (Footnote: When the unsuited rock warped like so many potato chips some years later, Amoco had to pay more to replace Bonnie’s pet facing than it had paid to construct the building. They financed the remediation quite simply: by firing 5,000 Americans.)
I’m ceaselessly amazed at how these “multinational” predators are never called to account for continuing to enjoy all the advantages of living in the country they say they owe nothing to. I guess they’re in the process of fixing that by eliminating said advantages entirely. I don’t know, maybe they’ll build their own island so they don’t have to feel threatened by the rabble. Presumably when the posters on this board are banished to make it possible, they’ll rush to condemn themselves as brutish inconveniences whom the executives understandably had to brush aside. Anything for the betterment of free market economics, you know.
I think that I’m just getting sick of watching gas prices go up a nickel immediately after the price of oil goes up a nickel, but see no downward movement whatsoever when oil prices drop a buck (as they have numerous times throughout this ongoing price “surge”). I’m sure one of you armchair economists have an explanation for this, but I am annoyed nonetheless. I’m paying $3.39 here in Wisconsin and it has an impact. And no, I can’t take my business elsewhere like I could with most everything else I buy because exactly 5 companies own every drop of gas in this country and they all have the same pricing strategy, apparently.
As to Democratic “show” legislation like this gouging bill, I think this demonstrates how disconnected with “the people” our politicians of both parties have become. I can’t remember a successful piece of legislation that actually addressed a problem experienced by the non-millionaires of this country. Certainly, the uber-rich get what they want and need at every turn and until we insist on getting the money out of the process, we are nothing more than cattle to be harvested whenever GE wants a new war or Citigroup wants to cut their losses due to lenient bankruptcy law. Public financing of elections is our only hope to get some actual representation in the political process – I don’t care WHAT the issue is.
“Why should we give Dems any less benefit of the doubt, given available evidence that they rule more competently?”
LOL! Thank you for the humor. It’s been a tough day at work already and it felt good to laugh.
Stimpy,
Yes. And that has to be preceded by a cleanup of the elections themselves, which leads you straight back to Karl Rove and the fired US attorneys. Anyone reading this who passively thinks “politics don’t affect my real life,” think again.
hey I paid a lot for a real sweet leather armchair and and economics degree and I’m going to pontificate from it.
I think the boreds of directors and some mangers of GM, Ford & Chrysler have found out their first responsibility is selling a product that customers will buy and not pissing shareholder money away.
I wasn’t suggesting that executives are all knowing and the brightest and the best either – just that over time and without govt help the price will go down. Look at what happened to the price after the 1st Gulf War.
anyway nobody complains about the price of soda or coffee.
Here’s the real kicker — there are already plenty of laws against price gouging. There’s no need to make one more, unless you’re trying to win over the stupid, unwashed masses.
I’ve seen it happen time after time. Gas prices rise. People cry foul, and the local gov’t promises to look into claims of price gouging. After a few weeks, they come back and say there was no gouging, it was simply a response to supply and demand, and everyone goes on with their lives. That’s exactly what will happen with this bill. Allegations of gouging will be bandied about, investigations will last months, if not years, or at least long enough to let the initial furor to die down, and then they’ll declare it was all fair, and move on.
As far as gas companies getting record profits, well, of course they are. They’re making record sales, also. If they make, say, $.20 profit on a gallon of gas, and sold 10 billion gallons last year, and 30 billion gallons this year, then of course they’ll make more profit! It doesn’t mean their profit margin has increased, it is simply a reflection of increased sales.
I had some truly thick people trying to convince me a couple weeks ago that the “Gas Out” on May 15th would work. Uh huh. Just like it did in 1999, and 2000, and 2001, etc… yeah, gas prices totally dropped afterwards, don’t you remember. Oh, they didn’t? Because the overall consumption didn’t drop? “Oh, but maybe the oil company executives will see we’re mad and stuff and will feel bad for us.” Uh, sure. There’s wishful thinking, and outright delusion. I’m sure you can guess what that falls under.
anyway nobody complains about the price of soda or coffee.
You must have been in the Arctic the day Starbucks announced an across-the-board price increase. My ears still hurt…
you get expensive gas, rationed gas or no gas. take your pick.
The real gouging occurs when it is lifted, the country that pulls it out of the ground th cheapest enjoys the same market price that the north sea platforms have to sell at, give or take a few pennies. If there were real competition at the source then oil pulled out for 5.00 a barrel ( the lifting costs in Saudi Arabia) would be much cheaper than tar sands at 40.00 a barrel to refine. Putting all oil regardless of source or costs into the same market, add a little political upheaval in certain regions, and then a depreciated dollar and you have a receipe for 65.00 a barrel oil.
None of this is addressable by this government. we also cannot tell the rest of the world what to do, pay for oil, or drive. Another consequence of oil being a global commodity.
having oil be a global commodity worked when we needed to import oil at a price point lower than our own domestic production costs, now that we import 70% domestic production would have a hard time replacing that number and the environmentalists won’t even consider any proposals.
Drive slow, get rid of the SUV, stay home more.
I’m sure this bill was authored because all the cranks in this Congressman’s district have been writing/emailing/calling demanding that he “Do something about these darned gas prices and big oil companies.” I hear people around me constantly complaining that the Government hasn’t “done something about it.” These are the same people who want local school buildings upgraded and then complain when their property taxes increase.
I appreciated the comments about the trading effect. I would be very interested in some analysis about oil trading and its effect on the price. For example, every news story includes the phrase “…oil traded today at…” and yet most people yell about oil companies and producers. Obviously the trading market has a huge effect, but few people talk about it.
I’m no trader but you can see what everything is trading at here.
http://www.bloomberg.com/energy/
NYMEX RBOB Gasoline Future is what I always look at. The price at the pump normally follows the same track only with taxes and profits added.
What’s the cliché? Oh yea: Talk is cheap…
From: CNN Money/Fortune, April 2007:
Consumers talk a good game about fuel economy before they arrive at the showroom. But they get dazzled by glitzier features when they walk into a dealership.
“Customers will trade five miles per gallon to get fancy cupholders,” says Mike Jackson, head of AutoNation, the country’s largest auto retailer.
Want proof? Back in 2000, when gasoline was the cheapest liquid around, fuel economy ranked as the 29th most important attribute in buying a car. Today, when gas costs as much as $3.25 a gallon, good mileage still ranks only 22nd. Sound systems and convenience features rank higher as purchase considerations.
-&-
If Bush wanted some guidance on how to quickly and efficiently meet his goals, he need only look to Europe and Japan, where the motor vehicle fleets get dramatically better mileage than they do in the United States. Cars average 36 mpg in Europe and 31 mpg in Japan vs. only 21 mpg in the United States.
The reason is simple: Higher taxes force drivers to pay more for gas. Taxes add $4 to the price of a gallon of gas in Europe and $3.25 in Japan, but only 40 cents or so in the United States.
@troonbop: “I would be very interested in some analysis about oil trading and its effect on the price”
Disclamer: I’m only an arm chair economist (and a poor one at that).
Oil and gas (and lots of other things like FCOJ see: http://www.imdb.com/title/tt0086465/) are traded on commodity markets. Commodities are, in my words, things where brand (or source) doesn’t matter. I.e., do you care if your gasoline came from the north atlantic, or the mid east? It really doesn’t matter, it’s all gas, and your car runs on it. So since it’s all the same, the price is set globally.
The idea is that the commodity market makes it easier to get the goods to market by setting up the transfer of the goods. So some guys pump oil out of the ground and refine it into gasoline, now they could try to sell it to all the people who want it, but it’s easier to sell it to one person and have that person get it. Likewise, all the people who want to buy gas could negotiate with all of the producers, but it’s easier to buy from one place. That one place is the commodity market. The price they “set” for the commodity is ultimately set by supply and demand, but also speculation on future supply and demand (see info on the futures markets: http://en.wikipedia.org/wiki/Futures_exchange). It’s just like the stock market, you buy commodities at hopefully a low price, so that you can later sell it at a high price.
Example: For some commodities, like FCOJ, you buy during the growing season (to provide the farmer with cash) and hopefully at harvest time the price has gone up when you sell to the supermarkets. You can generally get a better price earlier in the growing season because there is more uncertainty (i.e. risk) in the final harvest quality. The closer you get to harvest, the more is known about the quaility and the closer the buy price is to the final sell price. For fuel, you buy when you think either the supply is about to drop (wells drying up) or the demand is going to go up (summer driving season).
There are tons of theories and whatnot out there, but it really boils down to people “guessing” on the future price of gas. You or I could call up our stock broker and say, we want to buy gas and you’d own shares of that gasoline on the commodity market, and you can later sell that gasoline and hopefully make a profit. The more people who want to buy the commodity, the higher the price goes, the more people who want to sell it, the lower the price goes.
As much as it may feel like it, there’s not “Man” setting the price of fuel, it’s a bunch of people buying and selling the commodities. Just like the tech bubble of the late 90’s there are lots of uninformed investors which end up messing with the price, often creating a bubble because there’s always someone dumber to buy the shares at a higher price. In fact, as late as this January shares of unleaded gas were going for ~$1.50/gal down from a high of $2.00, now they’re about $2.23/gal. The correction from $2.00 to $1.50 was when a little bubble burst (at the time there was tons of talk on CNBC about the bottom falling out of the market because of bad speculation). The same thing could happen again, I think the rise to over $2.00/gal was too quick to be anything but bad speculation.
Here’s one place to get a list of what’s traded as a commodity and what the current prices are: http://money.cnn.com/data/commodities/
As I said in an earlier post, the commodity price is what price the oil companies are selling the gas for, so that’s the price that includes their profit (about $.10/gal), the difference between what you pay at the pump and the commodity price is gas station profit (about $.03/gal), transportion to your local gas station (varies greatly), and most of all taxes ($lots).
The obsession with extra taxation borders on absurd. Charging extra on gasoline will not bring about any short term or long term solution to our energy woes, just a confirmation that our government really is in cahoots with the oil industry to take as much money out of the working man as they possibly can. At the end of the day, people still will have to travel 60 miles to work because life in the suburbs is a much better alternative than living in the city where a speculative real estate market ensures that the increased cost of living will always significantly outstrip the commuter savings.
Diesels and hybrids are a start, but what is it that really stops the kei-cars and superminis from reaching our shores. Can’t be lack of demand, since Fits, Yarii, Versas, and even Aveos can’t seem to sit on the dealer lots for too long.
The “energy crisis” is 34 years old.
I got my license in ’76 and remember alternate day gas rationing in ’79 in Pennsylvania based on license plates. Gas had “jumped” that summer from about 60 cents to nearly $1.00 a gallon where we were.
During this 34 year span, our government has done as close to nothing as imaginably possible to deal with a crisis issue that has serious economic, and clearly now, significant national security impact. If we weren’t concerned before 9/11, we well ought to be now.
34 years is a lot of time to waste when a nation’s future is at risk:
-Had Ike decided to wait as long for better weather for D-Day (June 4th, 1944 was a washout) he’d have had the Allied Troops hitting the beaches in 1979.
-Had JFK responded to the Cuban Missile Crisis with the same speed, he’d have been trying to find the Soviet Union in 1997 to discuss things.
-Had George Washington decided to hold off attacking the British over the Delaware with the same deliberation, he would have gotten that done just about in time for Lincoln’s Birth in 1809.
IMHO, we need a “Moon Project” type program that combines public and private resources with a commitment to become 80% energy self sufficient within a decade. That’s a tough number, but it could be done if those who are responsible for decisions step away from indecision.
And I realize that’s a tall order these days.
Diesel has higher energy density, but diesel engines are not more efficient than direct injection gas engines, per unit energy.
WRONG! Diesel engines operate at a higher compression ratio than gasoline engines, and are therfore more effcicient in terms of converting fuel BTU to distance travelled.
The higher compression ratio is also why diesel engines are more expensive than gas engines and why they tend to last longer.
Issues like this serve to remind me that education in this country completely ignores economics. There is no ‘price gouging’, collusion, or ownership of the White House by ‘Big Oil’. The majority of our nation’s oil comes from international sources. International demand for oil has exploded recently (largely because of the rapidly expanding Chinese economy). Unfortunately, international supply is highly constrained by war, instability (Venezuela et cetera), and Opec. Therefore, the cost of the commodity has risen dramatically of late. As Mr. Montgomery pointed out in a post earlier, stations (and similarly corporations) sell their product above replacement cost to maintain stable cash-flow. This in turn leads to record profits when they are reported. Companies must do this, otherwise they will show record losses in subsequent quarters. It’s really that simple. Gas prices affect me as much as anyone else (I’m a college student with virtually no disposable income). To foolishly rail against oil companies for doing what they are required to do is nothing but selfish and ignorant. International demand is not going to abate. Therefore, the only way to lower the price of a unit of oil/gas is to increase supply. If this is to be accomplished, we must increase drilling here in the United States. Where are the politicians advocating this? I’m so tired of Congress and the White House wasting time trying to show they care rather than creating actual solutions.
On another note, to those that say they are frustrated that the price of oil fluctuates, but the price of gas seems to be a non-decreasing function, where have you been? We are just now getting above post-Katrina price levels. The price of gas certainly has both risen and dropped.
In response to tonycd complaining that the CEO of Amoco felt no responsibility to the citizens of this country, you cannot be serious. Of course he feels no obligation outside of his shareholders. His sole responsibility is to the shareholders (and keep in mind that you are probably a shareholder in several companies). This is why the free market works. When you are deciding where to purchase gas, do you worry about which station most needs your business? I didn’t think so. You buy what best meets your needs. They sell at a price that meets their needs. If you prefer the failed Soviet economic model, I suggest you move to Cuba. You forget that corporations are not evil sentient beings. They are owned by millions of people. The rest of your rant was nothing more than silly class-envy. I’m poor, but I realize that this is not caused by someone else being rich.
If people in this country would drop their silly jealousy and stop looking for someone to blame for higher gas prices, we could actually have an intelligent debate on what solutions would best solve our problem. Unfortunately, too many people seem to be content with uninformed righteous indignation for this to be accomplished.
Read just how clueless our elected offials are. as to why gas prices are suddenly so high: What do you get when you combine long-postponed maintenance, record demand and low imports? And to sum it up, a picture is worth a thousand words. See the second last set of figures, the upper lefthand graph.
My three reforms for doing something about the high price of gas:
1. Get rid of all of these stupid-a$$ed oxygenated-fuel air-quality attainment mandates. Oxygenated fuels represent a dillution of the BTU content of the fuel; in my opinion they are unnecessary in cars with pollution controls; the only place they help is with lawnmowers — start some kind of program to subsidize battery-powered lawnmowers for suburban and city homeowners with small amounts of grass.
2. Same for these even stupider a$$ed ethanol program.
3. Get the execs from the Big 2.718281828 into a room and wack them about the head with a cluebat that new refinaries are not getting built and that they have to budget their mix of vehicles between light trucks and cars to stay within the available amount of gasoline production.
A better solution would be to slap a 50c-$1.00 tax on gas. The drop in demand would dampen any price gouging if it’s really happening. It would force people to buy more efficient vehicles. It would slow the rise in price that is inevitable as China and India buy ever more cars. And it would encourage development of alternatives.
anyone else notice Stupak’s name backwards is kaputs ?
It’s mind-boggling how some lessons just never get learned (or get ignored when there’s a cheap political point to be gained). The idea that the wisdom of bureaucracy will be more effective at allocating supplies of a scarce commodity than the free market should have died with the Soviet Union.
The one commodity that is in no danger of becoming scarce is economically-illiterate voters who believe that there is such thing as a free lunch and that the government will serve it up.
LOL, David Holzman. I can assure you that if I had noticed the kaputs connection I would have [tried] to work it into my article.
David Holzman:
“A better solution would be to slap a 50c-$1.00 tax on gas. The drop in demand would dampen any price gouging if it’s really happening. It would force people to buy more efficient vehicles. It would slow the rise in price that is inevitable as China and India buy ever more cars. And it would encourage development of alternatives.”
Problem is as demand decreases and the price per barrel falls there is no reason for oil companies to increase exploration into alternative fuels. Now a good strategy might be to spend the $$ now while the coffers are full on finding alternative fuels for the next downturn. But they wont realize any benefit from those expenditures for years if ever. That will happen on another CEO’s watch…
David Holzman: A better solution would be to slap a 50c-$1.00 tax on gas. The drop in demand would dampen any price gouging if it’s really happening. It would force people to buy more efficient vehicles. It would slow the rise in price that is inevitable as China and India buy ever more cars. And it would encourage development of alternatives.
I’ve got to disagree with you regarding the idea that raising taxes would either curb gouging or result in a long-term decrease in prices. People might be driven into purchasing vehicles that are more efficient but only because the price is higher, which is antithetical to your notion that prices would go down.
But aside from that, what if American consumption of gasoline dropped 25%, would retail prices drop? Yes, temporarily. But the oil companies cannot survive selling gas as inexpensively as most consumer apparently want them to.
This was demonstrated about 10 years ago after the Gulf War when gasoline prices were so low and the oil companies were losing billions (nobody seems to remember that period of time when they complain about “record” profits in recent years). So what happened? The oil companies shuttered refineries, laid off employees and some of companies merged. This took up the slack on the production end and prices increased to tenable levels.
I know that it doesn’t make anybody feel better but historically, gasoline is not at its highest level if you adjust for inflation. Neither is crude oil. In fact, they aren’t even close. Unfortunately this fact is rarely pointed out by the media (other than TTAC), politicians or activists because they all have something to sell.
“stations (and similarly corporations) sell their product above replacement cost to maintain stable cash-flow.”
If I owned a gas station in Florida and a hurricane came thru, I would just shut down my station rather than risk being thrown into a government’s rape cage or have them steal my property. If Im not allowed -by Vogon law- to sell *MY* gasoline at a price where I can replace it, then I will not sell any gasoline at all and wait for the price to come back down. If the scum in DC pass this law, look for “no gasoline at any price” in Florida this hurricane season.
The gov’t-gun-backed OPEC cartel targets a market price. If we all stopped driving cars tomorrow and rode bicycles, OPEC would stop pumping oil in an effort to maintain world oil price. If we all bought Hummer H1s, OPEC would start pumping more oil. To say conservation is the answer is just silly…High gas prices is a [government created] supply problem.
To look to the Politicians to help increase your living standard is like getting a Rapist to chaperon your daughter.
Who are the real price gougers here?
thebigmass: There is no ‘price gouging’, collusion, or ownership of the White House by ‘Big Oil’.
I’m inclined to think you’re right about price gouging, but as far as ownership of the white house by big oil, what do you think dick cheney and w are made of? They are both oil men. We’re mired in Iraq because Cheney wanted to insure that we–rather than the Chinese–would control or at least have first dibs on the Iraqi reserves, which I think are among the biggest in the world. What do you think that secret energy advisory committee of Cheney’s was all about?
Ain’t nothing being sent to the President yet, man.
The Senate still has to approve it before that happens.
(The real problem is: Representatives feel the need to be seen to be doing something, and there’s the idea that a perceived problem is both a) a real problem and b) soluble and b2) soluble by State action.
Often (as in this case) a) isn’t true, and thus b) isn’t – and even if a) were, b) and b2) often aren’t.)
I’ve got to disagree with you regarding the idea that raising taxes would either curb gouging or result in a long-term decrease in prices. People might be driven into purchasing vehicles that are more efficient but only because the price is higher, which is antithetical to your notion that prices would go down.
William, I guess I didn’t finish the thought. I dont’ see taxes bringing down the price of gasoline. But they’d make it more difficult to raise prices, because the prices would already be high. Furthermore, the extra cost in the form of taxes couild come back to us, the taxpayers, in the form of lower taxes, or infrastructure repairs, or whatever, rather than going to the oil companies or to the Middle Eastern dictatorhsips that like to cause us so much trouble. Actually, I favor Tom Friedman’s idea of putting a floor on the price of gasoline of on the order of $3.50.
I also don’t see consuption falling by anything like 25%. That would happen suddenly only if there was some sort of disaster. Might fall by a few %, but again, I look at the tax as more of a way to keep consumption from rising as fast.
And yes, I was going to point out, myself, that the price of gasoline has been at least this high, maybe a bit higher, in ’81, but you beat me to it.
The gov’t-gun-backed OPEC cartel targets a market price. If we all stopped driving cars tomorrow and rode bicycles, OPEC would stop pumping oil in an effort to maintain world oil price.
they would want to keep their income as stable as possible. To do so they might well reduce the price in such an unlikely event, in order to keep the income flowing in.
David Holzman: I realize Cheney and Bush have extensive ties to the oil industry. Please don’t misconstrue my statement to mean I am a supporter of the current administration. I simply think it is dishonest to imply that their history with the oil industry has anything to do with recent oil company profits, or current gas prices. The profits earned by big oil of late are explained quite simply by the fact that oil was acquired for a (relatively) low price and sold when replacement cost dictated prices be higher. The fact that the White House has strong ties to the oil industry allows people the facile conclusion that they are to blame for higher prices.
On another note, I cannot believe how many people are in favor of some sort of government intervention in gas prices. Leaving aside theoretical arguments, are not the gas shortages of the 70s, the failure of the Soviet economy, the miserable economies of France and Cuba etc. evidence enough that government intervention in the economy is uniformly disastrous? Luther makes an excellent point in that if stations are required to sell their product at below replacement level prices, they will simply wait until oil prices drop to sell any fuel at all. I’d rather have expensive fuel than none whatsoever. The fact that our average citizen is upset about $3.50 gas for his/her $40,000 SUV is proof enough of the superiority of the free market.
Why not look in the bright side of all this??? Gas prices are going up and higher gas prices will force Americans to do what they would never willingly do: conserve. The other good part about higher prices is that is makes alternative energy sources both more viable and more fundable.
The other positives is that reduced dependence on foreign oil will lead to fewer oil based foreign policy/military (mis)adventures. I hope nobody is so naive as to think that the Iraq invasion had nothing to do with oil. One heck of a coincidence that we mounted a military campaign in a country with some of the highest potential oil reserves in the world AND we had no access to those reserves pre-invasion. As developed countries scramble for control of remaining reserves, the potential for conflict between those countries increases as well.
It would be nice to see a politician look forward and address the big issue as opposed to playing politics. The truth is that gas prices need to go up in order to produce change in US consumption habits.
“I hope nobody is so naive as to think that the Iraq invasion had nothing to do with oil. One heck of a coincidence that we mounted a military campaign in a country with some of the highest potential oil reserves in the world AND we had no access to those reserves pre-invasion. As developed countries scramble for control of remaining reserves, the potential for conflict between those countries increases as well.”
What? So where exactly is big GW hiding all this precious oil? Oh yeah he is piping it back to his Oil buddies through his super secret pipeline? That is beyond absurd.
“One heck of a coincidence that we mounted a military campaign in a country with some of the highest potential oil reserves in the world AND we had no access to those reserves pre-invasion.”
Ummm…we had no access to these reserves pre-invasion because of UN resolutions that we demanded. Hussein would have loved to trade freely with us. In addition, trading with him would not have led to the (increased) strife with the rest of the Middle East that the war has created. In turn, supply would conceivably be greater, reducing gas prices. Glance at the price at your local gas station. Can you honestly say we went into Iraq for oil? Why is fuel so much more expensive now? The idea that we went to war in Iraq for oil is not intellectually supportable. The war is of course a disaster, and we clearly should not have invaded, but the ‘no blood for oil’ crowd trivializes real debate with their silly hypothesis. We could have in 2003 opened trade with Iraq and gained access to enormous supplies with no financial/human costs. Instead, we invaded, destroyed much Iraqi infrastructure, spent billions of dollars, and lost many lives. Iraqi oil production is now hampered by a stubborn insurgency. In the best case, a stable Iraq will trade with us at normal market prices. This for a cost of billions of dollars and thousands of lives. We could have had the same from Saddam for no cost. My brother is in the Army, so I would appreciate if we could debate real issues and solutions regarding Iraq rather than rehashing foolish celebrity causes from four years ago. I’d really like to see a stable Iraq so we can get our troops home safely. Rubbish such as this will accomplish nothing of the sort.
How about a little supply and demand being applied to the CEO of Occidental’s paycheck. $460 million last year. Could the board of directors not find a supply of CEOs to meet the demand to run the company for a meager $50 million?
there is only one damned reason why the gas prices are so high- THERE IS NO SUBSTITUTE. as long as the shark oil companies feel that customers will buy the oil at any price they will sell it for the highest price possible. that`s why we still have a 25cents snickers bar but in europe 6$ a gallon oil. this is the only damned reason why medicine is so expensive. this is the only damned reason why obligatory insurance is so high. etc. anything that a customer can do without, at certain price point the customer will go away. in oil case it doesn`t happen, because there is nowhere to go. and it doesn`t matter what miserable reasons they mention ( cat farts in near east), they reak in unbelievable profits. still these prices choke american manufacturing. the problem is also that government doesn`t do anything to stop these huge exxon- mobils to parasite on middle class. oil is easy money, no wonder there are so many american companies there. when it comes to cars…. that`s another story. politicians should understand the tax money they get from oil companies is is not as big as the one they would get from healthy oil -price car manufacturing sutuation and related businesses. but people are primates- money,sex and gene distribution. da vinci is an illusion.
Did you see 20/20 last night? It was reported that the government received over 70 billion to the oil companies 60 some billion in profits. Who is doing the gouging?
Stupak should have looked north of the border. The federal government has investigated the oil companies on something like 5 occasions, and each time they have concluded that they cannot prove that they are colluding on prices or that they are gouging. Note I used the words ‘unable to prove’. As William says, any self-respecting attorney good beat a rap like this without breaking a sweat.
26theone:
I’m talking about the reasons for going into Iraq, not how things turned out. Pre-invasion, Iraq had (and still has) some of the most promising oil exploration areas in the world and all of it was controlled by the French and the Russians. Getting those reserves for the US, IMHO, played a role in the decision. That is no more absurd than Administration officials thinking that our invasion in Iraq would be welcomed like ending the German occupation of France. Lots of things have not panned out as planned/expected in Iraq in case you haven’t noticed.
thebigmass:
I’m not saying oil was THE reason for the war, but that it played into the decision. Had things gone differently, the US could have secured a major source of oil for the country. Just didn’t work out that way. Oil is just one of the many miscalculation that went into the decision to invade Iraq. That’s all I’m saying.
Were there better ways to obtain oil from Iraq than invading??? Sure. Does this have any bearing on how we get out now??? NO! And I never indicated it did.
As I said before, this is not so much about gas rising in price. Instead, it’s about US dollar losing value. US dollar lost value to oil, and to housing, and to many other currencies.
It’s amazing, when people complain about gas price, at the same time, they brag about how much their houses are worth now. Don’t they see a connection?
thebigmass:
Hussein would have loved to trade freely with us. In addition, trading with him would not have led to the (increased) strife with the rest of the Middle East that the war has created. In turn, supply would conceivably be greater, reducing gas prices. Glance at the price at your local gas station. Can you honestly say we went into Iraq for oil?
1) I agree that for cheaper oil, it’s best to work with Saddam. Let him rule Iraq and there will be stable oil output. And he would do whatever the US asks.
2) But Bush did go into the war for oil and arms contracts. You see, US is still the world’s No.1 oil producer. By raising the oil price, lots of companies benefit. Not your average driver, but certainly your average oil stock holder. But somehow, he mis-managed it and they cannot really get any oil out of Iraq. It’s more like a Detroit-3-cannot-manage-properly type of thing. In other words, Bush is no better than Wagoner in leadership and judgement.
For anyone who thinks the oil companies are making too much profit, I would like to remind them that they could start an oil company. Or, they can buy oil company stock, and share in the profits.
Iraqi insurgents are presently stealing oil from the pipelines and refining it in hidden refineries under the nose of the worlds best military.
Jump on in boys, the water is warm, Exxon could use some real competition. GO FOR IT!
Just please stop whining. I am sure we would all like to get whatever it is you produce for less (if indeed you actually produce anything of value).