In a free market, prices are dictated by the supply of a particular
product compared with the demand for that product. The demand for
gasoline is high -- everyone needs it to get to work, heat their homes,
produce electricity, ship their products to the market, and so
on. Some of that demand can be adjusted in the short term
(consumers can choose to cut down on non-essential driving, put up with
the heat, etc); some can be adjusted in the long term (buying more
fuel-efficient cars). The supply is also variable, sometimes
We should not be surprised to see rapid price spikes when there are
supply problems. The individual gas stations need to make enough
money on their current inventory (ie, the gasoline in their underground
tanks) to be able to replace it when they run out; that means they need
to be ahead of the price curve, selling today's oil at tomorrow's
prices. If they don't do this, they will go out of
business. This doesn't mean they are making huge profits.
The recent spike in prices at the pump in the US can be laid partially
at the feet of Katrina, which impacted much of our refining capacity,
combined with the fact that we were already running pretty much at the
limit of our refining capacity to begin with. That combination
means that we had to make up the shortfall somewhere -- by finding
refined gasoline elsewhere and shipping it to the markets. Doing
that costs more than the usual procedure (otherwise, the usual
procedure would not be the usual procedure). So, when the cost of
delivering a gallon of gasoline to the local gas station goes up, the
supplier has to raise prices; the alternative is to go out of business.
We also should not be surprised to see large oil companies making big
profits. Consider; there are about 300 million people in America
alone, and each adult probably spends at least $100 on gasoline for
their car per month -- sometimes less, sometimes more. That's
completely ignoring business use and non-vehicle use, and it adds up to
$360 billion per year for the US alone. That's a huge
industry. Large absolute profits are meaningless; you have to
compare that industry with other industries to see how the profit
margins match up before you can even start to complain.
Let's not forget that gasoline taxes often make up a huge portion of
the price of gasoline. That money is going to your local
government, not your local oil company.
Here's a quote from the Tattler's post:
We are being led to believe that a 24 cent per gallon increase in 24
hours was a good thing. That somehow magically that prevented the
country from running out of gas. Say what? Did the extra 24 cents per
gallon prevent anyone from doing anything other than pay more at the
It prevented gas stations and their suppliers from going out of
business. There are sources of gasoline that they can get to the
marketplace so long as people are willing to buy; but those sources
cost more than the usual sources, so those additional costs have to be
covered. The oil companies could have chosen to keep prices at
the same level, and simply not supplied oil to the market at all while
the price was higher than some arbitrary point. Would that have
helped the situation at all?
This is not a Republican or Democrat thing. This is a consumer thing.
As comsumers we need to get mad enough to care about what is going on.
We need to start to hit back a little. We need to let the big oil
companies we won't put up with this anymore. No one is saying don't
make a profit. No one wants to say how much you can make. But not at
the cost of gouging it's customers. That's why we have anti-price
gouging laws. Try raising the price of plywood by 1000% during a
hurricane and see what happens. Why is this being allowed with gas?
this is a free market. Sellers set their prices and buyers choose
to buy -- or not. It's not something we want the government
involved in "allowing". As for raising the price of plywood
during a hurricane -- no problem! There's a limited supply of
plywood. Suppose you raise the cost by a factor of 10; that means
you can then pay your suppliers that same additional factor to get more plywood. If the roads are shut down or blocked by debris, it's going to cost more to deliver that plywood. Maybe even ten times more, especially if you intend to pay someone to drive into a hurricane.
But really, there's a simple truth here. If gasoline prices are
too high for your taste, and you don't like the idea of oil companies
making profits... you don't have to buy gas. Really. It's a
voluntary transaction. That you are willing to exchange two or
three dollars for a gallon of fuel is a sign that the price is
reasonable under the circumstances. If you think it's
unreasonable... don't pay it. That's the sign of a healthy market at work.