The Oil Drum

News headlines about the so-called "hot gas" issue have been appearing occasionally in the Drumbeats, so I thought it was time to shine some light on the subject. The Owner Operator Independent Drivers Association (OIDA) recently launched a new website to "educate" people on this issue. And by educate, I mean obfuscate, mislead, and misinform people. Consider for a moment their headline story:

Hot Fuel Costs Consumers More Than 2.3 Billion Dollars Annually

Let's see, Americans consume 140 billion gallons of gasoline and over 60 billion gallons of diesel each year. That means that even if their headline above was correct, the "rip-off" amounts to just over 1 cent a gallon. And given that pricing is set by supply and demand, what will happen with temperature compensation is that the average gasoline price will go up by just over 1 cent a gallon, plus a bit more as every retailer tries to recoup the cost of temperature compensation equipment. Who wins? The makers of the temperature compensation equipment, and the lawyers. Even in the best case, the average consumer who uses about 600 gallons of fuel a year would win $6 a year if you could suspend the laws of supply and demand.

Introduction

In Part I, I discussed the short term factors that have resulted in the recent, rapid increase in the price of gasoline. But there are a number of underlying, long-term issues that have been major contributors. I will attempt to address them and answer a number of related questions, such as: Why have no new refineries been built in the past 30 years? Are U.S. refineries breaking down more than normal? Are oil companies purposely withholding supplies to keep prices high? Have environmental regulations played a role? Does the use of ethanol influence gasoline demand growth? The answers to some of these questions may surprise you.

Introduction

As of this writing in late May 2007, gasoline prices have increased by over $0.70 per gallon since March. This is great news if you bought gasoline futures in March, but bad news for most consumers, and the politicians that answer to them. If you knew where to look, there were early indications of trouble brewing last winter. By February to early March there were definite signs pointing toward an impending problem – over 2 months before this became a "crisis" in the view of the public. On March 9, 2007 I warned that gasoline supplies "could pose problems in the coming weeks" and "higher gasoline prices will be the norm rather than the exception in upcoming years." So, how did this situation happen?

In Part I, I will discuss the short term causes that have resulted in the current supply crunch, and explain what factors potentially signal higher prices. In Part II, I will address longer term factors and policy decisions that have contributed to the problem.

A good bit of this story was originally posted on September 6, 2005, when the politicians first began talking about price gouging and windfall profits taxes after the price rise due to Katrina--and was put together by SuperG, Yankee, and one of our old contributors who was an industry "insider." Since we're back where we started, yet again (we also re-ran this post on April 25, 2006, I thought this post should resurface just one more time. (You can go back to the dated link above for the old comments.)

(By the way, we're not the only ones noticing a cycle of talking about gas price gouging, go to EE and check this one out, it's a good one.)

Oh, and one more thing, can I yet again state my call for a gas tax (that I know won't happen, but I need a catharsis), just one more time? I've been doing it for three years, why stop now? (even if some would argue that it could be a regressive tax). Cheers, PG.

There's been some grumbling in the media about how Big Oil is gouging the public by charging record prices for gas while they reap record profits and "gouge" consumers. No one can dispute that oil companies are doing really well. And certainly no one can dispute that gas prices are high. But is the connection as straightforward as it gets portrayed in the media? If the oil companies were less greedy, would we see lower prices as the pump? Find out below the fold...

[editor's note, by Yankee] This story was originally posted on September 6, 2005, when the politicians first began talking about price gouging and windfall profits taxes after the price rise due to Katrina. Since we're back where we started, I thought this post should resurface. I would just like to remind everyone to look at the dates that comments were originally posted in order to keep your timelines straight.

There's been some grumbling in the media about how Big Oil is gouging the public by charging record prices for gas while they reap record profits. For example, this article from The Nation says

There is no evidence of a willingness on the part of these highly profitable corporations to sacrifice in a time of national emergency.

Make no mistake: These corporations should be able to absorb a hit. Over the past year and a half, the four largest oil companies—ExxonMobil, ChevronTexaco, Royal Dutch/Shell Group and BP Group PLC—have pocketed close to $100 billion in profits. During the first quarter of 2005 alone, those firms pulled in a cool $23 billion.

But instead of sharing the pain, they appear to be moving to squeeze every cent they can out of the crisis.

No one can dispute that oil companies are doing really well. And certainly no one can dispute that gas prices are high. But is the connection as straightforward as the article suggests? If the oil companies were less greedy, would we see lower prices as the pump?

Find out below the fold...

Yesterday's New York Times had a very short piece in the "Week in Review" section about the windfall profits (yes, sorry for my obsession, but I'm trying to get wrap my head around this issue). I submit for TOD readers the following passage:

But analysts also say the companies shouldn't be blamed for their profitability, which is largely a function of the price of crude oil.

That price is set by the worldwide interplay of supply and demand for energy, forces that even ExxonMobil and its peers cannot control, said Mr. Fadel Gheit, a senior energy analyst with Oppenheimer.

"It's like the guy who won the lottery, and now everybody hates him," Mr. Gheit said.

"Call it dumb luck, call it anything, fine," he added. "But don't accuse them of all this outrageous behavior, price gouging and collusion."