Tuesday, October 09, 2012

Gasoline War: People Lose

Oil companies have long been a favorite political target, condemned by quoting their profits only as large numbers out of context and for the essentially irrelevant subsidies they receive from the federal government. The very first post I wrote on this blog was a dissertation on the folly of such scape goat tactics and the relatively modest profit margins that are actually made by oil companies.

When they use “supply and demand” as an explanation for skyrocketing gasoline prices, though, as they are currently doing here in California, I will join the critics in calling bullshit on them. Every time the price of gasoline goes up we are told that it is “due to a shortage,” or is caused by the “law of supply and demand” and we calmly go along. In this case, one California refinery experienced a fire and another was shut down due to a power failure, and so gasoline shot up to an average of $4.72 in a matter of days.

Nonsense. For one thing the refinery fire was in early August, so let’s not be using it as an excuse for prices that shot up in October. That’s like going to the hospital with a broken leg and claiming that it happened in a car crash three months ago. A story like that is going to have the ER doctors calling the police. Or the guys with white coats.

The larger point is, though, that the fact that you are making less gasoline does not mean that it costs more for you to make it. A shortage allows you to raise prices, it does not require you to do so. It is greed which is the cause of the increase, not the shortage. It would be entirely economically feasible for gasoline to be in short supply and remain exactly the same price if greed did not lead to producers charging more for it simply because the shortage allowed them to make more profit by doing so.

The governor’s solution is not to clamp down on pricing and immoral profit, but to allow the sale of “winter blend,” which the oil companies already have in stock, early in the season, proving that he’s bought into the “shortage pricing” lie. It also allows them to restart the two refineries on the winter blend rather than restarting with summer blend and making the conversion on schedule. Despite a slight decrease in gas prices which will result, this is a win for everyone except the consumer.

Anyway, high gas prices are due to profiteering, not “supply and demand.”

1 comment:

bruce said...

So the oil companies are the demons now for real, not a scapegoat like in the past?

Oh and the ER doctors wear white coats, so I think you might have meant the guys with straitjackets. But I wouldn't want to sound like I'm putting words in your mouth....

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